HSBC fund eyeing up fresh demand for investment grade corporate bonds

City A.M. Reporter
HSBC is launching a new investment grade corporate bond fund, seeking to tap demand from latecomers to a sector which saw dramatic returns last year.

The HSBC GIF Global Core Credit Bond will be run by the bank’s specialist active management arm, Halbis, under chief investment officer for fixed income Xavier Baraton.

Baraton yesterday said that although the price of bonds has risen since the beginning of the rally last March, there was still a premium for investors willing to enter the market now.

“Furthermore, company fundamentals have been less depressed than anticipated which can be illustrated by profitability or cash flow-to-debt dynamics,” he said. Baraton said current market prices imply annual default rates at 2.2 per cent a year over the next five years but added, “this appears to be exaggerated”.

Baraton told Reuters he hoped the fund would attract over $100m in a year. “We think that investors will continue to seek exposure to credit markets,” he said.

Both investment grade and high yield credit spreads tightened dramatically in 2009, off historic wides following the collapse of Lehmans. Although further tightening is expected in high yield, there is likely to be much less on offer in investment grade. This would limit returns to investors.