It may soon be all systems go for corporate bonds in Canada, according to one major international bank.
HSBC Holdings is predicting that with the start of government stimulus spending in the country, corporate bonds can actually present an enticing opportunity for investors, having fallen to their cheapest levels for four years.
With widespread concern over a slowdown in global growth, investors are actively seeking safer assets. This has led to the excess yield the market demands to hold Canadian corporate bonds over ultra-safe government securities to 1.85 percentage points: representing its highest level since 2011.
However, Xavier Baraton, who runs the fixed income investments that are at the core of the HSBC Global Asset Management firm, believes that fears over the slowdown of growth are potentially overblown.
Speaking to Bloomberg’s Toronto office, he commented that: “if you’re a long term investor, it’s time to add to your bond exposure - your corporate bond exposure.”
In particular, Baraton’s focus is on European securities which he believes will have fewer defaults that those in the USA. He also commented that the European Central Bank’s bias towards an ease of monetary policy will help produce a tailwind for corporate bonds.
Here in Canada however, with government bond yields dropping to record levels, it is the stimulus package predicted for March that could prompt investors to engage with Baraton noting “it could help drive investors back to corporate bonds.”