The case for holding investment-grade corporate bonds has largely evaporated because this asset class has surged in value on the back of heavy buying, making a case for investors reducing their exposure to it, according to PSigma Investment Management.

Having been attractively priced in January as a result of indiscriminate selling, “corporate bond fever” has gripped the investment community, squeezing yields and reducing the relative price gap against government bonds such as US Treasuries, said Thomas Beckett, head of global investment strategy at PSigma.

“This leaves us questioning now what to expect from corporate credit, whilst we have become concerned that corporate bonds have become a hugely consensual trade,” Mr Becket said in a note.

“Many quality [bond] issues are now trading at yields of less than 1 per cent over government bond yields, with some as low as 0.5-0.6 per cent, which we believe are now unattractive, regardless of the deluge of money that is chasing these markets. It therefore seems sensible to consider scaling down our exposure,” he said.

Mr Becket fears that if government bond yields rise as a result of investor worries about inflation or heavy public debt, then bond yields will also rise.

“Therefore, we have come to the conclusion that many elements of the investment grade universe are now fair value,” he said.