We Still Like Our (Underwater) Positions!
(5 min read)
To capture interest income or carry in a low-yield environment, we favour high-yield corporate bonds. We can get exposure to the broad high-yield market through holding either the HYG or JNK ETF.
Credit spreads have ground tighter over the past year and settled in narrow trading ranges near decade tights (Chart 1a). The investment-grade spread is near 91bp; high yield is about 325bp. Therefore, our trade has eked out some gains. We expect spreads will stay near these levels and possibly gradually tighten further as long as the economy avoids a recession. Provided the economy is in growth mode (even if slow), corporate defaults will remain low.
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