Finding value in US credit

At the index level, the spread differential between investment grade credit, as measured by the Bloomberg US Corporate Investment Grade Index, and BB-rated credit, as measured by the ICE BofA BB US High Yield Index, is more than double, a significant pickup of more than 100 basis points (as of September 7, 2021). Given the average maturity profile of BB-rated credit is shorter vs higher quality credit, these securities may offer support in a rising rate environment due to their lower rate sensitivity. In addition, we anticipate limited shareholder-friendly activity from BB-rated companies versus investment grade companies that are positioned to take advantage of lower all-in yields.

Source: Bloomberg, September 2021

Past performance is not a guarantee of future results. Investing involves risk, including the possible loss of principal.

BB OAS: ICE BofA BB US High Yield Index Investment Grade Index OAS.

IG OAS: Bloomberg US Corporate Investment Grade Index OAS.

What this means for investors

As investors continue to reach for yield, BB-rated credit can still offer valuable yield compared with that of investment grade credit at current levels. While fundamentals are generally strong across the board, we believe it is important to choose wisely and to consider active managers that have a deep credit research process and can use both investment grade and high yield credit to navigate this relationship across the quality spectrum.


Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

Nothing presented should be construed as a recommendation to purchase or sell any security or follow any investment technique or strategy.

The views expressed represent the investment team’s assessment of the market environment as of September 7,2021, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice.

Market risk is the risk that all or a majority of the securities in a certain market – like the stock market or bond market – will decline in value because of factors such as adverse political or economic conditions, future expectations, investor confidence, or heavy institutional selling.

Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt.

The investment may also be subject to prepayment risk, the risk that the principal of a bond that is held by a portfolio will be prepaid prior to maturity, at the time when interest rates are lower than what the bond was paying. A portfolio may then have to reinvest that money at a lower interest rate. High yielding, non-investment-grade bonds (junk bonds) involve higher risk than investment grade bonds.

The ICE BofA option-adjusted spreads (OASs) are the calculated spreads between a computed OAS index of all bonds in a given rating category and a spot Treasury curve. AnOAS index is constructed using each constituent bond’s OAS, weighted by market capitalization.

The Bloomberg Barclays US Corporate Investment Grade Index is composed of US dollar-denominated, investment grade, SEC-registered corporate bonds issued by industrial, utility, and financial companies. All bonds in the index have at least one year to maturity.

The ICE BofA BB US High Yield Index tracks the performance of US dollar-denominated below-investment-grade corporate debt rated BB1 through BB3 (based on an average of Moody’s, S&P, and Fitch) that is publicly issued in the US domestic market..

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