Corporate bonds

Be active as investors plunge back into corporate bonds

The bond market may be bullish, but cautious investors may not be ready to simply jump back into the market, especially when it comes to riskier corporate bonds. That said, an active management approach could help ease some of the fear.

This is an opportune time for corporate bond investors if the positive momentum can continue. As investors are well aware, the bond market followed the stock market lower amid inflation fears and rising interest rates.

However, the tide could turn as more and more investors feel more inclined to dive back into bond market waters. Yields are also reflected as such, according to a Reuters story.

“U.S. corporate bonds posted their first positive monthly return this year in May as easing inflationary jitters eased pressure on rates and the possibility of a less hawkish Federal Reserve dampened concerns. concerns about companies’ ability to repay debt,” the article, which was published, said. June 1.

As mentioned, investors are reacting with renewed vigor as their appetite for corporate bonds begins to soften. Bargain hunters, in particular, are eyeing the corporate bond market after the debt space fell to levels that look attractive in terms of value.

“Investors are bargain hunting for battered corporate bonds,” a Wall Street Journal article said.

“This is a reversal from earlier in the year, when investors sold off even the highest quality debt,” the article added. “The turnaround highlights the strains weighing on financial markets. In recent weeks, investors have grown more confident about the Federal Reserve’s trajectory for raise interest rates to fight inflation – and more worried that as a result growth has started to slow.

Investors who are still reluctant to dive back into bonds, especially corporate bonds, can opt for active management. This allows for more dynamic exposure that can change accordingly when the corporate bond market changes, for better or for worse, via a ETFs as the American Century Diversified Corporate Bonds ETFs (CORP).

The fund seeks current income with an emphasis on higher quality debt while aggressively allocating a portion of the portfolio to high yield. By its product website, CORP creates a systematically managed portfolio that incorporates fundamental and quantitative expertise that:

  • Adjusts investment grade and high yield components to balance interest rate and credit risk
  • Screens individual credits to look for those with strong fundamentals, reduced risk of default, attractive valuations and liquidity
  • Adjusts sector and duration exposures as risks and opportunities emerge

For more news, insights, and strategies, visit the Core Strategies channel.