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Anomalies drive bond market

The rating downgrades of General Motors and Ford in early May have created value opportunities in bond markets, says New Star.

Head of fixed-income strategy Theo Zemek says the market was moving as a whole before the downgrades, with all bonds following the key stocks. Since then, anomalies have emerged, providing opportunities for stockpickers.

Zemek says this is the first time that clear patches of value have materialised in the market and she has been using cash reserves to take opportunities of buying opportunities, especially in the auto sector. Since New Star invested in GM, it has bounced up in value as a result of the downgrade.

Zemek has also been buying bonds issued by good-quality cable companies and believes there is now good value to be found in both insurance and bank bonds.

Zemek says: “We had anticipated a sell-off in gilts but this has failed to materialise. Consequently, we have been using our cash reserves to take advantage of buying opportunities in the corporate bond market.”

Best Advice consultant Paul Banfield says: “I have never had a high-yield client come to me saying they are worried about downgrades. Clients going into high yield understand that there is a degree of risk and expect fund managers to make decisions about the markets on their behalf.”

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