For the average investor, it’s hard to imagine high-yielding debt to be associated with “safe,” unless the word “not” precedes it, but to fixed-income investors in the know, these bond have been anything, but junk in a rising rate landscape. As the curtain closes on the bull run and the late market cycle, the natural propensity for fixed-income investors is to shift back to safer government debt, but in today’s environment of rising rates, high-yielding bond strategies may be the safer option.
“High yield credit has been the one bright spot in a year of negative fixed income returns, returning 1.65% in 2018 for the Bloomberg Barclays High Yield Index,” Hahn noted in the report. “Spreads in high yield credit hit their tightest levels in 10-years at 312 bps. High Yield returns have been driven by lower grade credit where CCC have experienced a year-to-date total return of 5.27% versus -0.42% for BB bonds.”
The U.S. municipal bond market represents a $3.8 trillion pie and firms are already looking to get a slice. For example, Columbia Threadneedle Investments has the Columbia Multi-Sector Municipal Income ETF (NYSEArca: MUST) that incorporates rules-based and strategic beta strategies to suss out opportunities within the municipal bond markets.
For the right investor, the muni market could be rife with opportunities.
“Municipal bonds continue to offer a stable tax advantage income to investors in higher tax brackets,” Hahn noted. “Interest rates in municipal bond sector rose through the quarter by roughly 30 bps across the yield curve.”
At the conclusion of the report, Hahn offers his guidance for fixed-income investors by focusing on two investment themes–click here to find out more.
For more trends in fixed income, visit the Rising Rates Channel.