Bond sentiment improves

Sentiment in UK corporate bond markets has continued to improve over the past few months, according to Rebecca Seabrook, manager of F&C's Ethical Bond Fund.

"Issuance in the UK market has continued apace with non-financial issuance already reaching record levels"

she commented. "To date, the new issues have been well received and prices have become tighter, reflecting robust demand. However, the majority of these came from well-regarded defensive names so the depth of the demand remains largely untested".

"Riskier assets enjoyed a strong recovery as fears of systemic failure in the financial system have been replaced by hope of imminent economic recovery and an end to global recession", she added.

Seabrook's Ethical Bond Fund has enjoyed robust performance figures, outperforming both the IMA Corporate Bond peer group and the Iboxx Sterling non-Gilt index for the first half of 2009, boosted by positions in financials which rallied strongly from their extremely distressed levels during Q1.

However, Seabrook warns that the road to recovery for financials is far from underway. "A number of financial institutions continue not to call their bonds at the first opportunity and some have been forced into not paying their coupons. This has obviously had a negative impact on sentiment".

Seabrook remains cautious on the outlook and challenges the suggestion of a ‘V' shaped recovery. "There will undoubtedly be a recovery from the very low points reached in late 2008 and early 2009; the issue is how resilient this proves once the initial euphoria abates".