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Investment- grade can match junk bond yields

New Star head of fixed income James Gledhill says investors may well find better bond opportunities in the investment-grade sector rather than through high-yield bonds.

He says high-yield bonds may offer 20 per cent annually for the next three years but the attraction of investment-grade is that while it may return 13 to 15 per cent annually, the coupon could be held for up to 10 years.

He says: “What has happened with Lehman Brothers has shown that governments are unlikely to let another big bank fail again, therefore the attraction for investment-grade bond funds is enormous. It is amazing that their spreads have not jumped on the back of the news as it means that default risk is now low.”

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