Hope, fear and wonder as a new market opens
Use your debt lest someone else does
JP Morgan hosted a corporate bond conference at the Hotel Crillon in Paris on July 9. The Morgan bankers had guessed that a Friday in the summer at one of the best hotels in Paris would be a reasonable attraction. But even they were surprised at the attendance - there was standing room only at several presentations and they were relieved that excessive festivities on a boat trip down the Seine on the eve of the conference delayed some delegates' arrival at the morning sessions.
The high attendance underlined the topicality of the conference. And if any investors were bleary-eyed, Guy Coughlan, head of portfolio research, should have wakened them with some surprising findings from his team's recent investigations into the risk-and-return characteristics of portfolios of credit bonds and government bonds. Coughlan isolated the performance due to credit in various portfolios by matching out currency and interest-rate profile between government and corporate indices. He looked at US corporate and government bond portfolios over the periods 1983-92, 1985-89, 1973-92 and 1926-97. His message: not only do credit bonds outperform government bonds, they are also less volatile and less risky.