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&#39Income from leaner and meaner industries&#39

Decent income from the corporate bond market will be made in “leaner,

meaner, nimbler” industries.

M&G head of global fixed interest Theodora Zemek warned delegates to avoid

investment-grade bonds, namely the so-called quality companies where fat

cats and golden handshakes are “diametrically opposed to creditors&#39

interests”.

Zemek stressed that in the new economy, top-quality corporate bonds have

not compensated investors for considerable risks.

Junk bonds, which include Orange bonds, overcompensate for those risks and

are less volatile, she claimed.

Zemek used British Gas as a prime example of a company whose ability to

repay debt diminished after it went public.

Leaner industries which have limited access to equity finance, say,

telecoms and media, are a far better bet, she said.

They are companies where bondholders&#39 interests precede shareholders&#39

interests and they benefit from a booming economy, she added.

The optimal credit rating is BBB/BB, she said, as there is a chance the

rating can go up.

Certain that the UK will not enter the euro for at least another 10 years,

Zemek concluded that bottom-up “boffin analysis” misses the point.

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