Giving credit where credit is due

Since 2008, most active bond managers have been overweight corporate bonds – this tactical positioning has paid off. Corporate bonds have not only provided attractive yield levels above federal bonds; they have also benefited from a narrowing yield differential (the spread) as markets normalized post-financial crisis. This dual benefit (initial excess spread and subsequent spread narrowing) warrants an evaluation of corporate bonds as a tactical investment opportunity after periods of significant credit spread widening. In light of the spread widening we have seen over the last 18 months, this paper dissects the causes and highlights the opportunities actionable by investment committees in today’s environment.