Andreas Michalitsianos, a manager within the European corporate credit team, believes investors should think twice before taking their “money off the table”, saying the dispersion of credit spreads will soon rise.
He spoke just a few days after the CFA Society released research showing the perception of bonds as expensive and over-valued had hit five-year highs.
Global and corporate bonds were both overwhelmingly seen as overvalued in the survey of 219 industry managers and analysts.
But Michalitsianos argued credit, “relative to equities and considering the data, looks reasonably attractive on a global basis”.
He said: “Rather than simply taking profits, investors in credit need to focus on increasing diversification, which is absolutely critical right now.
“Dispersion of credit spreads is currently low but we expect it to rise.”
The chief executive of the CFA Society added he believed those surveyed have been surprised by bonds yields staying so low “given the sense that growth and inflation are accelerating” and the possibility that interest rates could soon normalise.
While Michalitsianos accepted current spreads compared to historical averages do paint a picture of an over-valued credit market, he said the buoyant economy justifies the valuations.
“As a risk asset, credit is responding to strong underlying economic conditions. More than anything, credit really hates recessions. So the further we are from an economic recession, the tighter credit spreads should be,” he said.
