{"id":40031,"date":"2023-07-25T00:11:08","date_gmt":"2023-07-25T04:11:08","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/what-are-todays-opportunities-and-risks-in-fixed-income-credit-markets\/"},"modified":"2023-07-25T00:11:10","modified_gmt":"2023-07-25T04:11:10","slug":"what-are-todays-opportunities-and-risks-in-fixed-income-credit-markets","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=40031","title":{"rendered":"What Are Today&#8217;s Opportunities And Risks In Fixed Income Credit Markets?"},"content":{"rendered":"<div data-test-id=\"content-container\">\n<p><figure class=\"getty-figure\" data-type=\"getty-image\"><picture>  <\/picture><figcaption> <\/figcaption><\/figure>\n<\/p>\n<p>Fixed income credit markets play a vital role in enabling issuers to access capital while offering investors the opportunity to earn excess returns by taking on additional risk.<\/p>\n<p>Treasury bonds provide investors with yields based on<span class=\"paywall-full-content invisible\"> prevailing interest rates, but corporate bonds may carry an additional premium based on the issuer&#8217;s creditworthiness, among other factors. Higher yields for corporate bonds generally correspond to higher credit risk based on an issuer&#8217;s credit rating.<\/span><\/p>\n<p class=\"paywall-full-content invisible\">While 2022 was a challenging year for fixed income markets that resulted in credit spreads increasing significantly, particularly for high-yield issuers, higher yields have offered investors additional sources of income return and a higher cushion to protect from price declines from rising interest rates.<\/p>\n<p class=\"paywall-full-content invisible\">The spread increase over Treasuries was due to various factors, including the U.S. Federal Reserve (Fed)&#8217;s aggressive interest rate hikes, fears of persistent inflation<span class=\"paywall-full-content no-summary-bullets invisible\"> and a global growth slowdown, pressure on corporate balance sheets, and tightening banking and lending standards.<\/span><\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\"><span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/07\/saupload_ex-1-corpbondcreditspreads_thumb1.jpg\" alt=\"A line chart of Corporate Bond Credit Spreads\" loading=\"lazy\"><\/span><\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Source: Barclay&#8217;s data; Bloomberg U.S. Credit Index, Bloomberg High Yield Bond Index, based on option-adjusted spreads.<\/p>\n<h2 class=\"paywall-full-content invisible no-summary-bullets\">What opportunities do higher yields present?<\/h2>\n<p class=\"paywall-full-content invisible no-summary-bullets\">When credit spreads widen, it can signal that investors are demanding higher premiums for accepting higher risk. However, higher yields also offer opportunities for fixed income investors to add additional sources of income return to their portfolio by identifying bonds that have been mispriced based on perceived risks despite strong fundamentals at the issuer level.<\/p>\n<h2 class=\"paywall-full-content invisible no-summary-bullets\">The importance of credit selection<\/h2>\n<p class=\"paywall-full-content invisible no-summary-bullets\">To benefit from higher yields while managing downside risk, credit selection has become increasingly important, particularly as dispersion within corporate earnings by sectors and issuers has increased.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Case-in-point: In May, U.S. large cap stocks exhibited a notable difference in earnings &#8211; the highest since 2020 &#8211; due to a rebound in tech stocks and a decline in many other sectors during the month.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">This example is a case where active management can shine and where experienced credit researchers and portfolio managers can make distinctions to identify opportunities for return and protect against downside risk.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Additionally, while lending standards have tightened since 2021, corporate cash balances have also started to decrease, which is a key indicator of companies&#8217; ability to service and repay debt. However, balances still remain well above historical levels:<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\"><span><img decoding=\"async\" src=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/07\/saupload_ex-2-corporate-cash-balances_thumb1.jpg\" alt=\"A chart showing Corporate Cash Balances\" loading=\"lazy\"><\/span><\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Source: Federal Reserve Economic Data, Federal Reserve Bank of St. Louis<\/p>\n<h2 class=\"paywall-full-content invisible no-summary-bullets\">The bottom line<\/h2>\n<p class=\"paywall-full-content invisible no-summary-bullets\">While higher yields offer more income potential, risks remain in fixed income markets. Amid this backdrop, we see active management as increasingly crucial in effectively navigating market volatility while also capturing opportunities. Ultimately, we believe skilled managers are well-equipped to help investors optimize their fixed income portfolios while minimizing potential downside risks. <\/p>\n<h2 class=\"paywall-full-content invisible no-summary-bullets\">Disclosures<\/h2>\n<p class=\"paywall-full-content invisible no-summary-bullets\">These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">This material is not an offer, solicitation or recommendation to purchase any security.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Forecasting represents predictions of market prices and\/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">The information, analysis and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual entity.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the &#8220;FTSE RUSSELL&#8221; brand.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">The Russell logo is a trademark and service mark of Russell Investments.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an &#8220;as is&#8221; basis without warranty.<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\">UNI-12267<\/p>\n<p class=\"paywall-full-content invisible no-summary-bullets\"><em>Original Post<\/em><\/p>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/seekingalpha.com\/article\/4619366-what-are-todays-opportunities-and-risks-in-fixed-income-credit-markets?source=feed_all_articles\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Fixed income credit markets play a vital role in enabling issuers to access capital while offering investors the opportunity to earn excess returns by taking on additional risk. Treasury bonds provide investors with yields based on prevailing interest rates, but corporate bonds may carry an additional premium based on the issuer&#8217;s creditworthiness, among other factors. [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":16361,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-40031","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What Are Today&#039;s Opportunities And Risks In Fixed Income Credit Markets? | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Fixed income credit markets play a vital role in enabling issuers to access capital while offering investors the opportunity to earn excess returns by\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=40031\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What Are Today&#039;s Opportunities And Risks In Fixed Income Credit Markets? 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