28 Nov White Paper: Corporate Credit Strategies Help Overcome Declining Expectations
Voya Investment Management – White Paper – Corporate Credit Strategies Help Overcome Declining Expectations
Worldwide central bank response to muted economic growth has brought fixed income yields to all time lows. Many investors are concerned that as growth accelerates and interest rates return to normal, returns on bonds with duration risk – most notably broad market investment grade bonds – will suffer and fail to meet their fixed income needs.
Facing the possibility of losses from interest rate risk, investors have sought higher yields and shorter duration — often through opportunistic forays into high yield bonds and/or senior loans. This makes intuitive sense; in the face of rising duration risk, credit spreads represent a reasonable alternative to offset potential losses. Investors are, of course, rightfully concerned with the potential dangers of increased default risk; however, the long-term effects of below investment grade credit risk on a diversified portfolio are not well understood, leading to confusion, avoidable errors and mental anguish as economic data releases drive waves of enthusiasm or fear.