"I used to think that if there was reincarnation, I wanted to come back as the president, or the pope, or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody". This quotation, attributed to a member of Bill Clinton's 1993 campaign team, is an apt one. Bonds, in effect, set the price of money for governments and companies alike. Movements in their prices and yields have ramifications for every single other asset class. No wonder that Tom Wolfe cast self-styled 'Master of the Universe' Sherman McCoy as a bond trader, in Bonfire of the Vanities.
Most private investors are familiar with gilts, which is what government bonds are called in the UK. Gilt prices appear in the financial pages of many newspapers, they can easily be bought and sold in small amounts through a stockbroker, and they are usually sought out for their key characteristic - security of capital.
Corporate bonds are a different kettle of fish. Private investors often believe them to be difficult to trade and out of their reach. They're not written about in the media in the same way that shares are. Research on bonds is produced on a completely different basis to equity research.
Yet corporate bonds are the asset class of the moment. Financial advisers are falling over themselves to put clients into them, proclaiming them to be a bargain. Corporate bond funds have been the best sellers in the UK for the past three months, according to the Investment Management Association (see chart below). Recent bond issues outside the financial sector have been snapped up, with many moving straight to premiums over their issue prices.
So what are corporate bonds, how are they traded, and what's the best way to invest in them - if indeed, now is the time to be investing in them?
