Vision on the corporate debt universe according to Capital Group

peter_baker_capitalgroup

“Valuations of investment grade corporate bonds seem a bit tight and do not really reflect company fundamentals. However, as long as central banks continue to deploy monetary stimulus, the risk of spreads widening significantly is limited,” it states Peter Becker, Capital Group Fixed Income Investment Director.

“Going forward, individual selection of credit risk becomes more important, precisely in an environment where valuations at the general index level remain clearly tight. In some areas of the market, the dispersion relative to its history is high and finding attractive opportunities requires deep fundamental analysis. ”

“There are a significant number of bonds on the verge of being downgraded below the investment grade category. Selecting those that will maintain investment grade will be the key to success when investing in corporate bonds this year.”

“Globally, we are close to neutral on credit risk, but we continue to see opportunities in sectors where some names may have more room to adjust, such as energy, chemicals and technology. We are underweight sectors. where we find fewer opportunities, such as communications, consumer goods and finance. In these industries it is very important to do your homework. “

“What happened in the investment grade bond asset class in 2020 was unique. In one year, we experienced a credit cycle that can typically last six to ten years. In March, the global spread on corporate bonds decreased. expanded from less than 100 basis points to more than 300 basis points, and subsequently returned to 100 basis points in nine months, which is where we are now. The recovery began after central banks intervened in March and April to give markets A boost of confidence At the moment, the level at which corporate credit is trading has fully included the weakness of company fundamentals in the price.

“In some months of last year, the huge volume of new issues remained at a record level, just as a result of the support of central banks. Faced with the uncertainty of the outlook, companies took advantage of this monetary support to advance their financing. This it offered attractive opportunities, with new issue concessions of up to 100 basis points. “

“Being defensively positioned at the beginning of the dips, we had some dry powder or cash to increase our risk position, with attractive names that were previously too expensive, which became cheaper and issued new debt. However, thanks to a A team of 15 investment grade emissions analysts who benefit from our extensive network of over 170 equity analysts, we remain selective and fully utilize our unique position to speak to each of the companies and fully understand their proposition. “