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US corporate credit, securitised products and emerging markets currencies attractive in second half

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US corporate credit, securitised products and some emerging market currencies appear attractive to bond investors in the second half of 2012, according to Standish Mellon Asset Management, the fixed income specialist for BNY Mellon.

In the corporate credit area, Standish said it favours shorter-duration, medium quality credit.

Standish made the observations in its August commentary, CIO View: Global Uncertainty and Thirst for Yield to Dominate Markets for Rest of 2012. The report notes that the bond market rally during the first half of 2012 has made Standish less attracted to areas that have performed strongly, such as intermediate duration high yield bonds.

"We expect certain trends to continue, such as that growth in emerging markets will remain higher than in advanced economies," says David Leduc, chief investment officer of Standish.  "We’ll continue to look for value in both local currency and external emerging market bonds."

The report notes that Standish believes that selected currencies, such as the Mexican peso, remain undervalued.  However, Standish said these currencies will continue to be highly correlated with global risk sentiment.

Standish expects the fiscal uncertainty in the US and Europe and the slowdown in China will weigh on the markets for the rest of the year, with global economic activity accelerating modestly to 3.5 per cent in 2013 after the US resolves its budget issues.

"We view the European Central Bank proposals for purchasing the short-term debt of countries that request a bail out from the European Financial Stabilization Fund as potentially meaningful," says Leduc. "However, we’d like to see additional steps such as structural reform or a roadmap for the eventual formation of a banking and fiscal union with joint Eurobond issuance."

Standish expects the focus to move to the US as the election approaches and rhetoric about the fiscal cliff rises. The report expects a resolution to the matter, but not until the "eleventh hour."

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