BlackRock Inc. says current corporate bond yields offer a more resilient source of returns that does not depend on expectations for falling interest rates or tighter spreads. The firm said it is now possible to build a diversified fixed-income portfolio yielding more than 7% with less than three years of duration and an average credit rating of A-. The outlook, released Wednesday in BlackRock’s quarterly fixed-income report, notes that yields are at levels seen only briefly three years ago and during the global financial crisis, amid renewed inflation pressures and interest-rate hikes in the US and Europe.
“They’re generational high yields,” said James Turner, BlackRock’s head of global fixed income for Europe, the Middle East and Africa. “You can get a much higher return in what should be a safer investment, compared with where one would have had to go for the same yield during the 2010s, early 2020s.” He added that opportunities include corporate hybrids in utilities, telecom and energy, where spreads have tightened less than in the broader market.
BlackRock warned that dispersion within credit markets requires greater selectivity across regions, sectors, ratings and even within individual issuers’ capital structures. In high-yield markets, the firm sees value in selected B-rated borrowers across real estate, financials and services, where fundamentals remain stronger than current pricing suggests. “It’s now so individual as to which companies will do well, and which have the right strategies going forward,” Turner said.
The firm argues that credit can build portfolios less reliant on equities and more resilient to the next payroll report, inflation surprise or geopolitical headline. “If you have a yield target, the incremental risk you now need to take to get 5%, 6%, 7% is very different from the risk you needed to take back in 2022,” Turner said.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing