In Shah’s experience, there is “a lot of generic demand” for bonds from both retail and institutional investors but he is concerned the current boom could see demand outstrip what is available to buy.
A key contributing factor, Shah said, is companies finding it cheaper to issue new debt overseas rather than in sterling.
Royal London Asset Management’s Corporate Bond Fund, of which Shah is deputy manager, has focused the vast majority of its exposure on secured UK debt and shied away from European corporate bonds given the very low, and in some cases negative, yields they offer, Shah explained.
He said: “My concern is if supply will keep up. There are a lot of bonds that are trading at negative yields.”
Shah said a “normalisation” of yield values and more company growth, could help boost issuance.
“But at the moment companies can issue more cheaply in other currencies – UK investors could go overseas to buy them but the yields are still low,” he added.
Any overseas exposure the fund has to bonds issued in non-sterling currencies is limited towards bonds which exhibit attractive value compared to their sterling counterparts.
Shah’s concerns for the supply and demand cycle follows yesterday’s Thomson Reuters Lippers report which revealed global flows into bond funds dwarfed equity funds by 55% in January.
