Stockholm (HedgeNordic) – This year’s broad sell-off in the bond market due to aggressive monetary tightening in the fight against inflation may have investors take a look at the asset class again. With corporate bond yields reaching levels unseen in years, one can finally find some income in the fixed-income market.
“Today, interest rates in the corporate bond market are at levels we have not seen for many years, after a turbulent year in which many corporate bonds lost significantly in value,” Taner Pikdöken, portfolio manager at Atlant Fonder, tells Privata Affärer. “After this year’s turbulence, corporate bonds are once again a very attractive asset class,” he continues. “It is relatively easy to put together a diversified portfolio of corporate bonds issued by large and solid companies that can be expected to return 8-12 percent a year, which we consider to be very appealing in the current market.”
“After this year’s turbulence, corporate bonds are once again a very attractive asset class.”
New debt issuances and refinancings will likely be more challenging going forward amid higher interest rates and slowing growth, eventually causing corporate defaults to increase. For that reason, Pikdöken suggests building and maintaining a diversified portfolio of corporate bonds to minimize the risk associated with potential bankruptcies. “The critical thing in corporate bond management is to try to keep the bankruptcy rate as low as possible and we believe that this is best done by holding portfolios that are diversified across both sector, country and company,” says Pikdöken. “If you combine this with interest rates of between 8-12 percent a year, you get a portfolio that is very robust and can handle possible bankruptcies in the portfolio.”
The yield on a bond investment is a summary of the overall return that stems from the remaining interest payments and principal to be received relative to the price of the bond. “There are two different elements that contribute to yield,” points out Pikdöken. There are “great opportunities for the funds that avoid being forced sellers in turbulent markets and can instead be buyers of bonds that trade at prices well below the rate of 100,” he continues. “An important part of Atlant Fonder’s management is being able to act opportunistically when the market is turbulent.”