BlackRock increases investment grade credit overweight

BY Reuters | CORPORATE | 11/21/22 11:42 AM EST

NEW YORK, Nov 21 (Reuters) - Asset manager BlackRock (BLK) said on Monday it had increased its strategic overweight on investment grade credit due to attractive valuations and the income potential coming from corporate bonds' higher yields.

"We go more overweight investment grade (IG) credit on attractive yields and healthy corporate balance sheets that can withstand the mild recession we expect," strategists at the BlackRock Investment Institute said in a note.

The yield spread on the ICE BofA U.S. Corporate Index , a commonly used benchmark for the investment grade bond market, has gone up by about 50 basis points this year, reflecting the premium investors demand to hold corporate debt over safer U.S. Treasuries.

Expectations of a sharp economic slowdown as the Federal Reserve increases interest rates to fight decades-high inflation have led that spread to widen to more than 170 basis points last month, its highest since early 2020, but it has come down in recent weeks and stood at 145 basis points as of the end of last week.

"We like the income we can pick up in IG at higher spreads. And we see looming recessions having more ripple effects on high yield than IG," the BlackRock (BLK) note said, with reference to debt issued by companies with lower credit ratings.

BlackRock (BLK), the world's largest asset manager, also said it remained underweight government bonds due to expectations of persistent inflation, and that it preferred shorter-dated ones to longer-dated bonds, for which holders will likely demand added compensation.

"We are underweight long dated DM (developed markets) government bonds as we see term premium driving yields higher, yet we are neutral short-dated government bonds as we see a likely peak in pricing of policy rates," it said. (Reporting by Davide Barbuscia; Editing by Paul Simao)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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