For many investors, the bond market appears to offer a simple choice. Investment grade bonds provide greater security, but typically lower yields. High yield bonds offer more income potential, but with greater credit risk and larger price swings.
Bond investors face a familiar trade-off: safety or income. But is there a middle ground?
There is, however, a middle path.
A blended global credit strategy can combine different sources of bond income within one portfolio. The aim is not to maximise yield by taking as much risk as possible. It is to build a strong core of higher-quality credit, selectively add higher yielding opportunities and adjust the portfolio’s overall risk as market conditions change.
Start with a strong credit core
Credit ratings provide an indication of an issuer’s ability to meet its financial obligations. Investment grade ratings range from AAA to BBB, while high yield begins at BB and extends to lower-rated B and CCC issuers.
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