Investment Grade Credit: Protected by the Central Bank Safety Net
While it has been a volatile year for investment grade credit, we still see a variety of factors that could support the asset class in the coming months, including yield premium, a degree of protection from central banks and easing supply.
Senior Fixed Income ETF Strategist
It has been a volatile year for investors in investment grade (IG) credit. The early 2020 surge in returns on the back of strong equities reversed sharply in March as the pandemic-induced panic saw the market seize up. However, the proactive stance taken by central banks, both in terms of a monetary policy response and actions to free up markets, caused financial assets to bounce back.
With central bank buying acting as a backstop, IG credit seemed to make sense for investors stuck between the rock of very low yields on government debt and the hard place of taking on high levels of credit or duration risk.
Spreads to government bonds tightened over the summer but have been more volatile since the start of September as the second wave of the pandemic has de-stabilised risk appetite. Investors now must consider the degree to which spreads can continue to narrow given the resurgence of COVID-19 is hampering what already looked like a slowing economic recovery.
Against this backdrop, and as we noted in the Q4 Bond Compass, there are four main reasons why we like IG credit exposures: yield premium, the degree of protection offered, stable corporate conditions and easing supply.
SPDR ETF is the exchange traded funds ("ETF") platform of State Street Global Advisors and is comprised of funds that have been authorised by European regulatory authorities as open-ended UCITS investment companies. SPDR ETFs may not be available or suitable for you.
ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns.
Changes in exchange rates may have an adverse effect on the value, price or income of an investment. Further, there is no guarantee an ETF will achieve its investment objective.
SHARES IN THE FUNDS OF THE SPDR® ETF SICAV, SSGA SPDR ETFS EUROPE I AND SSGA SPDR ETFS EUROPE II PLC MAY NOT BE AVAILABLE FOR OR SUITABLE FOR YOU. THE VIEWS EXPRESSED IN THIS SITE DO NOT CONSTITUTE INVESTMENT ADVICE. INDEPENDENT ADVICE SHOULD BE SOUGHT IN CASES OF DOUBT. NEITHER THE INFORMATION NOR ANY OPINION CONTAINED ON THIS SITE CONSTITUTES A SOLICITATION OR OFFER TO BUY OR SELL SHARES OF THE FUNDS OR ANY OTHER FINANCIAL INSTRUMENT.
Standard & Poor's®, S&P® and SPDR® are registered trademarks of Standard & Poor's Financial Services LLC (S&P); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC (SPDJI) and sublicensed for certain purposes by State Street Corporation. State Street Corporation's financial products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and third party licensors and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability in relation thereto, including for any errors, omissions, or interruptions of any index.
SPDR ETFs may be offered and sold only in those jurisdictions where authorised, in compliance with applicable regulations.
Information related to Mexico
This information does not constitute and is not intended to constitute marketing or an offer of securities and accordingly should not be construed as such. The Funds referenced herein have not been, and will not be, registered under the Mexican Securities Market Law (Ley del Mercado de Valores) and may not be publicly offered or sold in the United Mexican States. Disclosure documentation related to any of the aforementioned Funds may not be distributed publicly in Mexico and shares of the Funds may not be traded in Mexico.
You should obtain the Prospectus and Key Investor Information Document (KIID) relating to specific SPDR ETFs and read them carefully prior to investing. For further information and the Prospectus/KIID describing the characteristics, costs and risks of SPDR ETFs, download a Prospectus or KIID here, talk to your financial advisor, or obtain it from your local SSGA office.