A Fresh Value Proposition in Intermediate Corporate Bonds Amid an Uncertain Outlook

Fixed income markets have had plenty to digest this year and we’re barely into the second quarter. Hotter jobs and inflation data early on helped push market expectations for the federal funds rate to cycle highs in early March, then the focus quickly shifted to banking sector turmoil as concerns about a potential contraction of credit availability spooked risk assets. In our view, the market’s skittishness underscores the murky outlook for interest rates and credit spreads. But we think bonds currently offer value, particularly investment grade (IG) intermediate corporate bonds, regardless of where rates and spreads go from here. Here’s why.

All-in yields remain elevated relative to history

It’s worth acknowledging that credit spreads and Treasury benchmark yields have rallied significantly from recent highs. But zooming out to a longer-term perspective reveals that yields on the Bloomberg Investment Grade Intermediate Corporate Index are still considerably higher than they’ve been since the global financial crisis. In our view, yields near 5% currently offer an attractive entry point signaling potentially favorable return prospects relative to recent history.