Corporate bonds overvalued according to 73% of investors

But CFA UK membership views equities as increasingly better value

Almost three-quarters of UK professional investors consider corporate bonds to be overvalued, according to the latest quarterly survey of CFA UK members.

In Q1 2019, 73% of professional investors surveyed thought corporate bonds were overvalued, increasing from 69% the previous quarter. Six in 10 investors consider government bonds to be overvalued.

Corporate bond yields dropped from 2.2% in Q4 2018 to 1.89% in Q1 2019 and government bond yields similarly declined from 1.75% to 1.57% between the quarterly surveys.

In contrast, the number of CFA UK respondents who feel developed market equities are overvalued has decreased. More than half of respondents (57%) still see equities as overvalued, but this represents a 4% decrease from Q4 2018. While major equity markets have rallied following the tech-led sell-off in October 2019, values are still lower than the peaks of 2018, CFA UK noted.

CFA UK chief executive Will Goodhart said the survey reflects less promising perspectives from investors than Q4 2018. “These are difficult times for investors, with equity and bond prices recently falling and rising together, and continuing concern about the global economy slowing.

“Since this survey was taken, uncertainty around Brexit and fears of a US recession have also taken a toll on market valuations and are impacting investors’ decisions. That said, the reduction in perceived overvaluation of developed market equities is encouraging.”

In total 150 members responded to the Q1 2019 survey.

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