Warning over corporate bond market


A lack of buyers could lead to a crisis in the corporate bond market, the head of Aberdeen Asset Management, Martin Gilbert has told the BBC.

“There’s a worry that there’s no buyers of bonds and that on any given day everyone might want to sell,” he said. The past few months have seen a number of market watchers express concern about the $10tn corporate bond market.

Corporate bonds allow companies to sell their debt to investors, and operate in a similar way to government bonds.

In a speech last week, Mr Gilbert warned of the systemic risk of a run on the corporate bond market and called on the Bank of England and other central banks to act as “buyers of last resort”.

“I think central banks should consider stepping into the corporate bond market and buying corporate bonds in a period of severe market dislocation,” he told the Financial Times’ City Network.

He said that if the banks did this, it would ensure there was enough cash in the market to prevent a run on corporate bonds and “widespread panic” similar to the run on Northern Rock. On Monday, Mr Gilbert told BBC Radio 4’s Today programme that he believed the Bank of England and other central banks “should consider, and I know that they are considering, whether they should make sure that the market works in a reasonable manner to stop a run on bond funds”.

Corporate bonds have enjoyed a successful period as investors moved their savings into them in the hope of achieving better returns given the fall in global interest rates following the financial crisis.

However, there are now concerns that as interest rates start to rise, investors will return to more traditional savings vehicles and leave the corporate bond market, leading to a liquidity crisis.

Mr Gilbert told Today that while he did not think a crisis in the bond market similar to that which occurred in the aftermath of the financial crisis was likely, he did fear there was not “going to be enough liquidity in the market when interest rates start to go up”.

His comments came as Aberdeen Asset Management reported a 12.6% fall in assets under management to £283.7bn in the 12 months to the end of September. Pre-tax profit dipped slightly to £353.7m from £354.6m last year.