tadamichi
Traders are accustomed to getting a snapshot of the market by trying on the newest index statistics. However at present, common spreads and yield for investment-grade company bonds are misleading.
A glance underneath the hood reveals that intermediate-maturity corporates are a way more compelling alternative than long-maturity ones.
Why? The unfold between the 2 has compressed in recent times and is now the narrowest it’s been because the early days of the pandemic. And the yield benefit of lengthy corporates over intermediate bonds is now close to zero.
The best way we see it, the takeaway for traders is straightforward: traders with long-bond publicity merely aren’t being compensated for the added threat.
What’s driving tighter spreads on lengthy bonds? Yield-focused traders reminiscent of pension funds and insurance coverage firms are locking in at present’s increased yield ranges by shopping for long-dated securities to match their long-dated liabilities.
The phenomenon is a worldwide one: US, UK and euro space bonds longer than 10 years all look comparatively costly consequently.
In the meantime, in contrast to long-dated corporates, intermediate-term credit score affords above-average spreads at present. That’s why, in a difficult funding surroundings, it pays to look underneath the hood.
The views expressed herein don’t represent analysis, funding recommendation or commerce suggestions and don’t essentially signify the views of all AB portfolio-management groups. Views are topic to revision over time.
Editor’s Word: The abstract bullets for this text have been chosen by Searching for Alpha editors.