“Credit markets are in uncharted territory as the global recovery is threatened by a mismatch between companies hoarding cash and record government debt, said Australia’s top-ranked bond manager.
“It’s pretty clear that the credit cycle is still broken,” Jeff Brunton, head of credit at AMP Capital Investors, said in an interview in Sydney this week. “I’ve been doing this for 20-odd years and it just feels very, very different to a normal cycle.”
Global growth may be a below-average 2.4 percent this year, forecasts compiled by Bloomberg show, even as central banks pour unprecedented sums of cash into the financial system. While AMP expects the rally that’s taken corporate borrowing costs to a five-year low to hold, it’s also buying derivatives to protect against risk aversion as policy makers grapple with a European backlash against austerity, Brunton said.
The AMP Capital Corporate Bond (AMPACBD) fund has delivered the best return among Australian fixed-income peers over the decade to Jan. 31, offering an average annual gain of 7.2 percent, according to Morningstar Inc. rankings. Over the same period, investors in Aussie corporate notes earned an annualized 7 percent, a better performance than any other developed market tracked by Bank of America Merrill Lynch indexes.
While more corporate borrowers are increasing profits, governments in the developed world remain mired in debt. Officials from Madrid to Washington and London are faced with the dilemma of trying to improve stagnant economies while combating deteriorating finances with austerity measures.