LONDON, Sept 12 (Askume) – UBS Asset Management is selling corporate bonds in its global portfolio during a boom in markets, a senior fund manager said, as the company worries about an economic slowdown or rising volatility due to the imminent U.S. election and returns could be lost.
Corporate bonds have surged over the past two years, with the ICE Bank of America U.S. Corporate Bond Index (.MERC0A0) gaining 14% as investors seek higher yields as central banks raise interest rates and economic growth stagnates.
That has pushed corporate bond yields below those of government debt, pushing the so-called credit spread — the extra return that investors get on corporate debt — to its lowest level since the start of 2022. The yield is inversely proportional to the price.
Such tight spreads mean investors are not getting enough returns to justify bearing the risks of what has historically been a more volatile asset category, Jonathan Gregory, head of UK fixed income at UBS Asset Management, told Askume on Wednesday.
“We have a credit market that is close to perfect, but a lot of things can derail you,” he said.
“Credit spreads will underperform if the risk of a US recession rises, ” Gregory said.
“In our global portfolio, we sell credit strength across all sectors,” said Gregory, who oversees about $30 billion of global funds at the asset manager with $1.7 trillion in assets. The same applies to U.S. and European investment-grade bonds and high-yield bonds, he added.
“We are not saying you shouldn’t take any credit, we just have to be careful,” he said.
Corporate bond spreads, a closely watched measure of corporate health, had widened in early August but have eased since as stocks fell on US growth concerns.
Last week was the fifth busiest week for U.S. investment-grade corporate bond issuance, with $81 billion issued, reflecting strong investor demand for higher corporate bond yields, according to IFR data.
Gregory said he prefers buying short-term government bonds.
“The government bond market gives you a good income and potential protection if things get a bit tough elsewhere,” he said.
