Investment leaders Margaret Steinbach and Warren Pierson said credit entry points are currently "incredibly attractive" for investors [1].
This shift in market sentiment follows a period of yield spikes that eroded gains across most fixed-income assets. The current environment suggests a potential pivot toward higher-risk credit as traditional bonds struggle to maintain value.
Steinbach, a fixed-income director at Capital Group, and Pierson, the co-chief investment officer of the Baird Funds, said the trend during the Bloomberg Real Yield program [1]. They said that junk-debt performance is now outpacing most other fixed-income assets [1].
The two experts said that the recent volatility in yields has created a window of opportunity. Because rising yields typically depress the prices of existing bonds, many assets became undervalued, providing a lower cost of entry for new positions [1].
High-yield credit, often referred to as junk debt, has shown resilience relative to other sectors. This outperformance makes these assets a primary focus for those looking to capture yield in a fluctuating market [1].
Pierson and Steinbach said that the current pricing allows investors to enter the credit market at a more favorable valuation than was available prior to the yield spikes [1].
“Credit entry points are "incredibly attractive"”
The preference for junk debt over safer fixed-income assets indicates a higher appetite for risk among institutional investors. When high-yield credit outperforms stable government or corporate bonds, it often suggests that investors believe the risk of default is outweighed by the potential for high returns following a market correction.
