The Case for US investment grade credit
- 30 June 2023 (3 min read)
US corporates are showing resilient fundamentals and solid balance sheets despite ongoing monetary tightening and market disruption.
At a macro level, with inflation falling in response to monetary tightening by the Federal Reserve (‘the Fed’), investors can potentially benefit from more attractive entry points as income takes over following the negative returns of the last two years.
1. Credit fundamentals remain robust
The US economy remains likely to enter a mild recession some time in 2023. That said, investment grade (IG) issuers should enter a potential recession in relatively good shape fundamentally.
US IG yield and price evolution since 2009
Source: Bloomberg, AXA IM, date from 1/2/2009 to 5/17/2023
► All-in credit yields for IG bonds are historically attractive after the Fed’s 500bps hike in rates from March 2022 to April 2023, and have not reached these levels since 2009.
► IG credit may also offer attractive compensation for interest rate and credit risks.
2. Making size and liquidity matter
With a value of around US$8 trillion, the US credit universe accounts for roughly two-thirds of the global corporate market, and has several key features:
► Strong liquidity profile
► Diversified with an abundance of selection opportunities
► Positive technicals following a decline in issuance
3. Accessing short-to-intermediate duration strategies
An inverted US government bond curve creates comparable yields for short-to-intermediate vs full duration strategies without incremental interest rate and credit risks.
Key features of shorter duration bonds:
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► Lower volatility in returns compared with the broader market |
Disclaimer
This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.
Risk Warning
The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.