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Fundamental research edge: Bottom-up opportunities in IG credit
Haran Karunakaran
Flavio Carpenzano
Peter Becker
April 12, 2024
The current high level of yield available in investment grade (IG) corporate bonds provides an unprecedented opportunity to lock in attractive income and returns for years to come.
As the following chart highlights, despite the strong rally in late 2023 (which led to one of the best years of results for the sector since the global financial crisis), yields have only returned to the level they were at the start of 2023 − higher than for 85% of the past decade. In other words, IG corporate bonds have returned to their traditional role as a high-income and high-quality asset class.
Global IG corporates look attractive on a yield basis
Past results are not a guarantee of future results.
Index is the Bloomberg Global Aggregate Corporate Total Return Index unhedged USD. Data as at 29 Feb 2024. Source: Bloomberg
With policy rates looking to have peaked and central banks likely to cut rates, IG credit is well placed to capture the opportunities created by a decisive shift in the macroeconomic environment.
In recent months, credit spreads have tightened, and as a result, index valuations are now rich versus historical levels. However, a combination of steady/declining supply and increased demand should continue to support the IG market.
Additionally, elevated dispersion at a geographic, sector and individual bond level means this remains an opportunity-rich environment for bottom-up active managers. By shifting focus from the macro to the idiosyncratic, we believe investors can maximise the unprecedented opportunities still available within IG credit.
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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.