High-grade corporate bonds are set to outperform other asset classes in 2009, fund managers and market strategists surveyed by the Financial Times have forecast.

More than half those surveyed said high-quality corporate credit was trading at cheap levels and that this was the asset class most likely to see a rally in 2009.

In contrast, government bonds were the least-favoured asset class, with many of the 30 leading asset managers and strategists surveyed arguing that yields had plummeted too far in 2008, prompting talk of a possible price bubble.

A majority of those polled said high-quality corporate bonds had been oversold after investors had abandoned corporate credit of all grades over the past year in favour of the safest and most liquid assets, such as government bonds and gold.

Tim Bond, global head of asset allocation at Barclays Capital, said: “I like credit as an asset class the best. Investment-grade corporate bond spreads are at levels last seen in 1932, which happened to be an excellent point to buy credit – even though it was the middle of the Great Depression.”

John Paul Smith at Pictet Asset Management said corporate credit offered the best potential returns while the severe global recession continued. “While we don’t anticipate any immediate improvement in the economic outlook, with corporate credit yields currently at unprecedented levels, investors are being paid to wait.”

Credit market prices are consistent with an unprecedented risk of default, even for the highest quality corporate bonds.

US investment-grade corporate bond prices, for example, imply a cumulative default rate of 36 per cent over five years, assuming a typical recovery of 40 cents in the dollar, according to analysts at Morgan Stanley. This is more than 7.5 times higher than the worst default rate in any previous five-year period.

The FT survey also showed growing concerns about the huge rally in government bonds, which benefited in 2008 from fears of deflation and a worldwide recession.

Mohamed El-Erian, co-chief investment officer of Pimco, said: “US Treasuries will face considerable pressure next year from the very large issuance of government paper to finance numerous public sector programmes.”

Additional reporting by Paul J Davies