The continued volatility in bond markets has many investors scrambling for better fixed-income solutions as calls for rate hikes persist and the inflation battle wages on.
In the corporate bond market, the underlying interest rate is actually a federal government bond. They are considered risk-free. Investment-grade credit spreads have increased in the past few months and likely have more pessimism built in than necessary. Indeed, with continued strong corporate earnings and record low unemployment, credit spreads may be a compelling investment opportunity.In fact, investment-grade credit spreads are close to their widest – and thereby cheapest – levels in more than 20 years, other than the exceptional periods of the global financial crisis and the onset of the pandemic.
Past returns illustrate the benefits of having active management in corporate fixed income. According to Craig Harrison, president of Global Manager Research, a portfolio measurement and governance provider for Canadian institutional investors, active credit-focused funds have consistently outperformed the bond index returns.