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Schroders sees value still to be found in BBB bonds

Schroders believes the UK bond market still offers good value despite strong returns over the past two years.

Head of sterling fixed income Robert Gall says Govern-ment yields have increased because the market expects interest rates to begin a tightening cycle that will peak at around 6 per cent in December 2003.

But he claims value can still be found in the lower end of the corporate investment grade universe and, in particular, in the BBB sector where Gall says the yields available were higher than the historical risk would indicate.

He points out the implied default rate for BBB over 30-year bonds is over 50 per cent when, according to Moody&#39s cumulative default rate, the historical experience for such bonds is around 17 per cent.

The most attractive sectors in the sterling bond market, according to Gall, are the BBB and single-A bond sectors.

He says: “BBB bonds have shown considerable volatility and have lagged behind other investment-grade bonds producing a lower return than A-rated bonds for the first three months of the year.”

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