menu
search
search

Hidden in plain sight: Overlooked opportunities in investment-grade credit 

Amar Reganti, Fixed Income Strategist
Geoff Austein-Miller, Investment Specialist
2023-12-31
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only. 

The sell-off in most fixed income assets over the course of 2022 has been brutal. Pernicious and stickier-than-expected inflation, a hawkish US Federal Reserve (Fed) laser-focused on the inflation portion of its dual mandate, and the ongoing Russia/Ukraine conflict have derailed the decades-long fixed income bull market. However, the two biggest drivers of this year’s downturn have begun to abate:

  • Inflation is gradually cooling. Of particular note, US inflation may have peaked, as demonstrated by the November CPI and PPI readings.
  • The Fed is likely to start slowing the pace of its interest-rate hikes, due both to incoming data and recent communications from Fed officials.

While macro uncertainties remain, and market volatility is likely to stay elevated, we believe large swaths of fixed income look more attractive than they have in some time. 

The opportunity in high-quality corporate credit

One area that we believe stands out these days is the investment-grade (IG) corporate credit market. As of this writing, current yields on IG credit are in the mid-single digits — a decade-long high. Most of these high-quality companies have very low default risk, and many have been trading at significantly discounted US dollar (USD) prices. For example, as of November 30, the Bloomberg US Investment Grade Credit Index traded at an average yield of 5.3% and an average USD price of $89.1. A low USD price can be an important credit metric: In the unlikely case of distress or default, the bondholder has legal recourse to seek the bond’s full par amount (face value), even if it was purchased at a below-par level. 

Moreover, while a slowing global economy could lead to wider credit spreads going forward, we believe USD rates have now reached levels that can potentially serve as an adequate cushion against a broader sell-off in risk assets. The defense supplied by this cushion is twofold: 1) higher bond coupons (yields) that can help offset any short-term market price declines; and 2) the historically diversifying nature of having portfolio exposure to interest-rate risk and credit risk.

Portfolio implementation considerations

There are some relatively simple, straightforward ways to implement a positive view on IG credit. For instance:

  • Fixed-maturity bond portfolios: These are one flavor of “buy-and-maintain” fixed income strategies, where the underlying bonds and the vehicle life are matched together. For example, consider a five-year end-date portfolio consisting entirely of bonds that mature in four to five years. Over the five-year lifetime, this portfolio would have no-to-low expected turnover, instead relying on deep credit research for security selection and credit monitoring. In essence, you’d be able to lock in today’s interest rates for the next five years, providing a stable and higher level of coupon. (As of October 31, five-year fixed-maturity portfolios yielded between 5.8% and 6.7%).

  • Total-return credit strategies: A more nimble and dynamic investment approach could be through a total-return credit strategy, which typically purchases IG credit assets when both yield and USD price skew become compelling (in the portfolio manager’s judgment). When credit opportunities are hard to find and valuations not that compelling, the strategy may resort to investing in US Treasuries. Unlike benchmark-sensitive strategies, this approach would be predominantly invested in either IG credit or the relative safety and liquidity of Treasuries, depending on the opportunity set.
Figure 1
Opportunities to lock in yield at low USD prices

Experts

Related insights

Showing of Insights Posts
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

Securitized credit: Normalizing, decelerating, or falling off a cliff?

Continue reading
event
4 min
Article
2025-10-31
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

Weekly Market Update

Continue reading
event
4 min
Video
2025-12-31
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

Rate relief: Fed cuts half point, but says “economy is strong” 

Continue reading
event
3 min
Article
2025-09-30
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

Monthly Market Review — August 2024

Continue reading
event
12 min
Article
2025-09-30
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

The real issue on rate cuts? Keep your eyes on the dot (plot)

Continue reading
event
3 min
Article
2025-09-30
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

Bonds in Brief: Making Sense of the Macro — August issue

Continue reading
event
4 min
Article
2025-09-30
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

Picture this: Our forecast in 7 charts

Continue reading
event
10 min
Infographic
2025-09-30
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

Read next