High-grade corporate bonds are better investments than government securities, argues John Braive, vice chairman of CIBC Asset Management.
If you’re a global company with sales all over the world, “You’re actually well-diversified, with numerous income streams,” he says. “That’s a better security than a single-country security.”
While investors are still jittery about corporate debt, Braive says quantitative easing might help credit markets. He’s also optimistic about the results of the second quarter earnings season.
“People will feel more confident about buying corporate and high-yield securities if they look at the numbers and see there hasn’t been much deterioration,” he predicts.
As for the rest of the year, he sees a fiscal cliff coming.
“I see estimates running about 3%-to-5% [of GDP],” says Braive. “U.S. GDP growth is about 2%, so you’re going to have a recession next year if [the U.S.] tax cuts don’t get extended.”
He adds, “A lot of people are saying they will, but Washington is becoming more divisive, so it’ll be more difficult for a deal to be done.”
He’s also concerned investors won’t be willing to make big investment decisions before the U.S. election, slowing the economy.
Further, new issues are more difficult to complete because capital is drying up.
“Unless they come up with some meaningful changes on the tax side, and [tax] cuts that will be automatic, the economy will be very weak in 2013.”