Goldman Sachs Sees Top-Tier Company Bonds as Most Attractive

The $6.5 trillion market for investment-grade company bonds is the most attractive for risk- averse fixed-income investors, according to Goldman Sachs Group Inc. (GS)

Goldman Sachs, the fifth most-active underwriter of top- tier corporate debt in the U.S., joins investors from BlackRock Inc. to Loews Corp. in saying there’s still value in the bonds even after the biggest rally in two years. The Federal Reserve is suppressing yields on the debt with its plans to stimulate a slowing economy, which include its expectation of keeping interest rates near zero through mid-2015.

“We expect the search for yield to intensify,” analysts led by Charles Himmelberg wrote in a Sept. 28 report. “Recent central bank actions have reinvigorated the relative value case for credit within fixed income.”

Investors funneled $2.1 billion into U.S. funds that buy investment-grade debt last week while pulling $5 million from those that focus on junk bonds, according to a Sept. 27 report by Bank of America Corp. (BAC) analysts. The best-rated company notes gained 0.6 percent last week compared with a 0.6 decline in junk bonds, Bank of America Merrill Lynch index data show.

“Investors will be forced to look elsewhere for duration,” the Goldman Sachs analysts wrote in the report. “To satisfy this demand in liquid U.S. dollar markets, corporate bonds would be the only realistic option.”

To contact the reporter on this story: Lisa Abramowicz in New York at labramowicz@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net