Capital IdeasTM
Investment insights from Capital Group
Fixed Income
Karen Choi
Scott Sykes
Flavio Carpenzano
An uncertain economic outlook and high interest rates are generally not viewed as a positive backdrop for investment-grade (IG) corporate bonds (rated BBB/Baa and above). Yet, a confluence of supportive factors is underpinning this asset class. These include relatively good credit quality, high average starting yields above 5.5%, an overall duration of about seven years and stabilisation of the banking sector.
As a result, credit spreads above US Treasuries have tightened to slightly less than 120 basis points (bps), which is near their 10-year average of 124 basis points.
In our view, while investment-grade credit could come under selling pressure in an extreme risk-off environment - the duration profile of the sector, credit fundamentals that are better than in prior periods of economic stress, as well as sustained demand from investors - should provide a degree of support, limiting downside risk in most scenarios.
Overall, we believe investment grade provides a solid middle ground for portfolios. If the US Federal Reserve (Fed) executes a ”soft landing“ and avoids a recession, investment-grade credit should fare well. And if there’s a ”hard landing“, the drawdown in investment grade should be muted compared to what we would expect to see in equities.
This article discuses why investment-grade credit can provide a compelling long-term investment opportunity.
Our latest insights
-
-
Long-Term Investing
-
Emerging Markets
-
Global Equities
-
Emerging Markets
RELATED INSIGHTS
-
-
Long-Term Investing
-
Emerging Markets
Hear from our investment team.
Sign up now to get industry-leading insights and timely articles delivered to your inbox.
Past results are not predictive of results in future periods. It is not possible to invest directly in an index, which is unmanaged. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.
Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.