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:
|
Image
|
Image
|
|
Image
|
Image
► Lower volatility in returns compared with the broader market |
Disclaimer
The information on this website is intended for investors domiciled in Switzerland.
AXA Investment Managers Switzerland Ltd (AXA IM) is not liable for unauthorised use of the website.
This website is for advertising and informational purpose only. The published information and expression of opinions are provided for personal use only. The information, data, figures, opinions, statements, analyses, forecasts, simulations, concepts and other data provided by AXA IM in this document are based on our knowledge and experience at the time of preparation and are subject to change without notice.
AXA IM excludes any warranty (explicit or implicit) for the accuracy, completeness and up-to-dateness of the published information and expressions of opinion. In particular, AXA IM is not obliged to remove information that is no longer up to date or to expressly mark it a such. To the extent that the data contained in this document originates from third parties, AXA IM is not responsible for the accuracy, completeness, up-to-dateness and appropriateness of such data, even if only such data is used that is deemed to be reliable.
The information on the website of AXA IM does not constitute a decision aid for economic, legal, tax or other advisory questions, nor may investment or other decisions be made solely on the basis of this information. Before any investment decision is made, detailed advice should be obtained that is geared to the client's situation.
Past performance or returns are neither a guarantee nor an indicator of the future performance or investment returns. The value and return on an investment is not guaranteed. It can rise and fall and investors may even incur a total loss.
AXA Investment Managers Switzerland Ltd.