Investors are increasingly turning to U.S. corporate credit, which offers attractive valuations and yields after the 2022 plunge, a fund manager told the Reuters Global Market Forum (GMF).
“We are at the beginning of our rotation as investors return to credit,” said Salim Ramzi, Global Head of Exchange Traded Funds (ETFs) and Index Investments at BlackRock. .
The iShares iBoxx Investment Grade Corporate Bond ETF and iShares High Yield Corporate Bond ETF are on track to post quarterly gains of more than 3% in the fourth quarter after losing 20% and 14% respectively this year.
“We don’t know exactly when inflation will peak, but I don’t think it’s a million miles away,” said Jim Reavis, chief investment officer for public debt at M&G Investments.
“If we’re at this turning point, the entry level you get by buying investment-grade credit in[the US]looks really attractive.”
Rising bond yields, which are inversely proportional to prices, are also making corporate credit more attractive to income-seeking investors after years of low interest rates, Ramji said.
Yield spreads on the ICE BofA US Corporate Index showed premium investors looking to hold corporate bonds over safe haven Treasuries, but fell to 145bps from a surge of 171bps in October, Best in over two years. .
Both Leaviss and Ramji expect the Fed to be nearing the end of its rate-hiking cycle, with Leaviss saying default rates are still low, putting bond issuers relatively well-positioned to weather higher borrowing costs. He says it looks like there is.
“Where we’ve shorted risk across bond portfolios, we’ve put risk back,” said Reavis, adding, “Everywhere you look in the bond market right now, good things are happening.”
Source: Reuters (Reporting by Lisa Pauline Mattackal and Nishara Pathikkal, Bangalore; Divya Chowdhury, Mumbai; Editing by Andrea Ricci)