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Cautious bull

First up, I do apologise for focusing on corporate bonds for the second time in a month – not least because such questionable practice almost certainly contravenes some part of the Geneva Convention. However, it would appear I only gave you half the picture when we touched on the subject last month.

I have brought up corporate bonds in the context of financial journalists’ touching desire to try to spot the next asset bubble despite an almost perfect record over the last decade of very much not doing so. Hopefully, we dealt reasonably intelligently with the chances of corporate bonds proving to be the next technology or property or, well, you take the point.

In case you missed it – and, if you did, what were you thinking? – the arguments I chose to find most convincing from the corporate bond evangelists were the charmingly modest valuations and the fact that, the global fixed income market being so enormous, UK retail investors were going to have to buy an awful lot of bond funds to have any influence on it at all.

Where I let you down, though, was in failing to consider whether corporate bonds not only had the potential to be a bubble but also the next misselling scandal (copyright: every-body) so I am indebted to my least favourite Sunday newspaper – to protect its feelings, let’s call it the Sunday Ti*es -for its front-page story setting me straight on how banks are “preying on desperate savers”.

Yes, most banks having already decided paying interest on deposit accounts was something they did not really feel like doing any more, they were now exacerbating the problem by plugging their own corporate bond funds as an alternative source of income to risk-averse investors. Honestly, things have got pretty bad when you can’t even trust a bank any more.

Now, he says, putting on his serious face, misselling is no laughing matter and if any bank really is so stupid as to be hawking bond funds to people without fully apprising them that the value of their investment can go down and so on and so forth, truly it deserves to be seen as the lowest form of life …er…to be nationalised… er…well, I’m sure the FSA will think of something new.

The very last paragraph of the “desperate savers” article did quote “the banks” – nice use of the generic, I thought – as saying “their advisers were trained to treat customers fairly and sell only suitable products” so maybe there is room for hope. But even so, this risk business is a tricky thing – especially when you are dealing with the low-risk, the cautious, the risk-averse and so on.

After all, in the very same Money section of the Sun**y Times, just four pages on from the “desperate savers” piece could be found a table of five “Funds if you’re cautious” – Allianz Pimco gilt yield, M&G gilt & fixed income, Invesco Perpetual corporate bond, Invesco Perpetual high income and BlackRock gold & general. Proof, if proof were needed, that caution means different thing to different people.

One pub debate that later arose from this – which, now I have typed those words, makes me feel a whole lot duller than I like to think of myself – was whether bonds might be being missold for a different reason. After all, rates have been slashed by 90 per cent in the last six months and it is arguable whether even the October cut has really filtered through to the system.

Add in the Bank of England’s high hopes for quantitative easing (or queasing for short) and suddenly high inflation becomes a real prospect – probably, I would imagine, about the time the fixed-rate period for my mortgage comes to an end. If or when that happens, corporate bonds are not going to prove the most comfortable investment.

Surely, argued my chum in the pub, that would make for a misselling – what’s the word? Oh yes – scandal. I would say not. Presumably it is hard enough selling suitable products in the present tense without having to worry about different future scenarios too. Am I right? I would describe myself as cautiously optimistic – however you may interpret that.

Julian Marr is editorial director of


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