Investors still have time to take advantage of high yields across global bond markets, according to Saira Malik, chief investment officer of Nuveen.
As interest rates remain steady and with a better-than expected corporate earnings season now behind us, stock markets might struggle to spot their next catalyst in the coming few months.
“This backdrop may serve as a good prompt to consider allocating to higher-yielding areas of the fixed income market, with Nuveen favouring high yield bonds and senior loans,” she said, in a recent CIO commentary.
Among sub-investment grade corporate credit, both fixed rate (high yield bonds) and floating rate (senior loans) assets have delivered attractive risk-adjusted returns compared with investment grade bonds, U.S. Treasuries and equities both recently and over the long term, Malik pointed out.
Moreover, “high yield currently benefits from strong technical and fundamental support”. Nuveen expects high yield default rates to remain benign, especially since the average credit quality for the asset class has improved in recent years.
Floating rate loans also look attractive in the current “higher-for longer” interest rate environment, while many other fixed income sectors are challenged by it. “Senior loans are well-positioned to complement the longer-duration profile of the broader fixed income market,” said Malik.
In general, Nuveen prefers higher quality sectors and enterprise revenue business models in both the high yield bond and senior loan categories.
“Looking ahead, Nuveen sees the potential for both sectors to provide equity-like returns with lower volatility, a good match for what should be an uncertain economic environment,” said Malik.
