He says the big difference between the bond spree and the dotcom bubble is that investors are not “euphorically” charging into corporate bonds as they did with tech. “In contrast, the buying is because investors are being cautious, sensing Hobson’s Choice,” he says.
Dennehy does not believe bond valuations point to a bubble. He says: “Current yields imply 40 per cent of all investment-grade bonds will go bust over the next five years, which is silly. Even if you exclude financials, the implied default rate is 15-20 per cent, compared with a historic peak in the UK of 4 per cent.”
Hargreaves Lansdown investment manager Ben Yearsley says: “Lots of people are saying you should have bonds. The prices are low, indicating there is no asset bubble. If you are seeking income, there is a case for Hobson’s Choice to a degree but you can go elsewhere for income, depending on the risk you want to take.”