As part of a new report “Global Credit: Uncovering opportunity and capturing value”, Insight Investment1 outlines why the time is now to harness value opportunities in credit markets.
Key takeaways
- Current yield levels in credit markets are attractive, positioned between the median and 75th percentile of levels observed since 20002.
- Credit spreads have tightened to post-global financial crisis (GFC) lows but remain supported by solid corporate fundamentals and a favourable economic environment.
- Significant dispersion in credit spreads exists even among similarly rated securities, offering active managers opportunities for alpha through relative-value strategies.
- A dynamic portfolio management approach that embraces market volatility can capitalise on alternative fixed income sectors when spreads widen.
Current credit market yields are attractively positioned between historical median and upper quartile levels, supported by strong corporate fundamentals and a stable economic environment.
Despite credit spreads tightening to post-GFC lows, significant dispersion among similarly rated securities offers active managers opportunities for outperformance. A dynamic, flexible portfolio management approach that embraces market volatility can unlock value across diverse fixed income sectors when spreads widen. Here’s four reasons why…
Attractive yield levels in credit markets:
Yields in the credit markets currently sit between the 50th and 75th percentiles of levels observed since 20003. This range is considered appealing for investors, especially as yields remain above those common before the 2008 GFC. Such yield levels suggest a compelling entry point for fixed income investors seeking income and total return potential.
Credit spreads near post-GFC lows but supported by fundamentals:
Since late 2022, credit spreads have steadily tightened. Despite this compression, the absolute yield levels remain near 15-year highs4, maintaining the attractiveness of credit markets. Insight highlights that sound corporate fundamentals, combined with an economic backdrop of lower interest rates and modest growth, support the sustainability of these tight spreads over an extended period.
Opportunities in spread dispersion for active managers:
Even with overall spread tightening, there is considerable variation in spreads across individual issues, including those with the same credit rating. This dispersion could create opportunities for active portfolio managers to generate outperformance (alpha) by selectively positioning within the credit universe. Relative-value strategies that exploit these differences could add meaningful value beyond benchmark returns.
Embracing volatility through dynamic portfolio management:
Insight advocates a dynamic portfolio management style that adapts to varying market conditions. This approach allows managers to invest beyond the global credit benchmark, including sectors like high yield, emerging markets, and asset-backed securities. Market volatility is viewed as an opportunity rather than a risk, enabling the capture of attractive alternative alpha sources when spreads widen materially.
In summary, credit markets today offer a compelling combination of attractive yields, supported by strong fundamentals and economic conditions. While spreads have tightened, dispersion among securities provides fertile ground for active management. Embracing a flexible, dynamic investment approach can help investors navigate volatility and uncover additional value across fixed income sectors.
1 Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA), BNY Mellon Fund Management (Luxembourg) S.A. (BNY MFML) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA, BNY MFML or the BNY Mellon funds.
2 Bloomberg Global Aggregate Credit Index, Insight and Bloomberg, as at 28 February 2025
3 Bloomberg Global Aggregate Credit Index, Insight and Bloomberg, as at 28 February 2025
4 Bloomberg Global Aggregate Credit Index, (Option adjusted spreads (OAS) were above 300bp from September 2008 – April 2009 and peaked in November 2008 at 435bp.), Insight and Bloomberg, as at 28 February 2025
2498001 Exp: 31 December 2025
