Credit risk premium at major resistance level

The option adjusted spread (OAS) over US Treasuries for B rated US high yield bonds has recently hit its major historical resistance level of 290bps (currently 341bps). In other words, the credit risk premium has shrunk to a level where extra bond returns from spread compression has become very limited. While we recommend a cautious approach at current high valuation levels, bond investors can still find ways to increase their return outlook at the expense of higher risk, such as moving further down in credit quality, extending bond maturities or shifting into more cyclical industries.

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Opportunities in Asian high yield bonds
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