Investment grade corporate bonds provide “a long-term investment opportunity not seen since the 1930s”, says Ben Bennett, credit strategist at Legal & General Investment Management.

Despite the increased risk of bonds being downgraded from investment to speculative grade and the inevitability of credit deterioration as corporate profits shrink, Bennett said there are “stellar opportunities” given “the extraordinary level of compensation” currently available in the market.

With average yields at more than 5 per cent above government bonds, Bennett suggests that annual returns of 9 per cent can be achieved by holding a core portfolio of non-cyclicals, such as certain retailers or pharmaceutical companies, together with a dynamically managed portfolio of carefully selected cyclicals. Key to success is avoiding investing in “fallen angels”, bonds which are suddenly de-rated to below investment grade, precipitating substantial falls in capital values as forced sellers dump them on an unwilling market.

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Corporate bond returns 'extraordinary'

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