Interest rates set to remain near to zero

Interest rates set to remain near to zero

Corporate bonds still attractive to investors

Global interest rates of nearly zero are expected to remain unchanged throughout this year in line with the slow recovery of large economies and new money continuously injected by several countries.

Pegler: Investors not fearful of measures

With investors facing numerous risks, global corporate bonds remain attractive, said Dominic Pegler, managing director at asset management firm BlackRock (Singapore), even though returns of 3-5% this year are lower than last year's 10%.

In fact, the huge demand in the bond market last year, especially for government bonds, was driven by uneven fund inflows caused by lucrative capital floods from the quantitative easing (QE) of the large US, European Union and Japan economies in their bid to revive their domestic markets.

However, corporate bonds remain at a fair price compared with those government or sovereign bonds that still have high yields.

Mr Pegler said it is clear that the US Federal Reserve will continue pumping money through its QE programme of about US$85 billion a month as its unemployment rate is still higher than its target of 7%, even though some economic data have slightly improved in recent weeks.

As well, the euro zone is still weak, with problems in Cyprus adding to the bloc's instability.

"Low interest rates are essential to spur consumers' purchasing power and investment," said Mr Pegler.

Japan is likely to keep its interest rate at zero, while its government has also injected funds into the system. China's interest rate is also expected to be very low in line with its policy to support the growth of consumption and investment.

Mr Pegler said fund managers can invest in high-yield corporate bonds by selecting good-profile companies and limiting the asset size of portfolios at around 10-15% of total assets.

The investment strategy of BlackRock will be focused on China, Asia and emerging markets, where strong bond yields returns are likely to be complemented by currency exchange rates as huge fund flows have pushed the appreciation of currencies in emerging countries.

"It is the truth that Asian currencies are going to appreciate due to fund inflows caused by stimulus packages in many countries," said Mr Pegler.

He said investors are not fearful of capital control measures that governments may impose.

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