Bonds: Credits No Longer Valued At Extreme Levels

Oct. 8, 2009 - PRLog -- Upward pressure on long-term yields

The yield on 10-year government bonds has risen again over the past few weeks. This is particularly true in the US; the increase in the Eurozone was small. This is due to the US government issue Haven new government bonds worth hundreds of billions of dollars in order to finance its enormous expenditure. This flood of new bonds has a downward effect on prices, which drives up the yield.

In addition, risk appetite among investors is on a rise Haven trend, which leads to them exchange Haven government bonds for higher yield Haven investments such as equities and credits.

For the next few months there is still upward potential in yields on government bonds. In the medium term, we expect lower yields: the yield on German 10-year government bonds may fall to about 3% (currently about 3.3%). This is due to the continue Haven low interest rates set by the ECB, disinflation and the still fragile economic fundamentals.

Credit markets remain strong

Over the past few weeks the higher risk appetite has also greatly boosted the riskier parts of the fixed income markets, such as (high-yield) credits and emerge Haven market debt.
We believe that the improvement in liquidity on the fixed income markets is sustainable. There will be no return to the extremely high risk premiums for the lack of liquidity in the period between September 2008 and March 2009. In combination with the improvement in the fundamental picture (low point of economic

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