News Digest: Watch out for high yield corporate bonds in 2023
January 10, 2023
Notwithstanding the potential of widening spreads amidst recessionary fears in the United States, high-yield corporate bonds, specifically in the energy and core industries, could perform well during 2023, a new report says.
This could be a reflection of higher coupon incomes, which BondBloxx Investment Management says is a real possibility, given that it expects the expected corporate due to recession, to still remain below their long-term average. The dispersion of returns across industry sectors will remain elevated, creating opportunities for outperformance on certain sectors, it says.
The BondBloxx 2023 Fixed Income Market Outlook says, reflecting the potential for a recession, we recommend investors overweight the higher quality segments of the credit rating spectrum, rated BB and single-B, and underweight CCC’s. Co-founder Joanna Gallegos even describes the single-Bs as the “Goldilocks of high yield” given their less rate-sensitive nature compared to the double-Bs and less idiosyncratic risks than triple-Cs.