Advisers have mixed views on bond market

PUBLISHED : Sunday, 20 April, 2008, 12:00am
UPDATED : Sunday, 20 April, 2008, 12:00am


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Banks are divided when advising on high-yield debt. As the subprime crisis in the United States unfolded and credit spreads widened, some loans suffered from markdowns and have become distressed assets for interested investors.

Ivan Leung, chief investment strategist in Asia for JP Morgan Private Bank in Hong Kong, said investors with a long-term objective might want to take up some high-yield debt now.

Mr Leung said the bank did not have any high-yield bond exposure before the breakout of the global credit crunch in August last year. '[Before the crisis] It wasn't because these assets were too expensive, it's just that we didn't see any good value in them.' But ABN Amro's quarterly outlook report suggested that portfolio managers should avoid high-yield bonds, small cap stocks and leveraged hedge fund strategies.

Bank Lombard Odier Darier Hentsch said it preferred to take risks in equities rather than fixed income. Philip Jehle, head of private clients unit at the bank, said the bank had invested in high-yield bonds because they were a great source of steady cash flow in the past 15 years, but the bank had become more selective recently.

'The yield spreads are becoming attractive again, although one has to be selective as the financial crisis the world is experiencing is not over, and firms with poor credit ratings will have difficulty financing themselves in the next 12 to 18 months,' he said.