September 20, 2021
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.