Why 'gentlemen's junk' offers best returns in fixed income space

Type of BB+ bonds

The so-called 'Trump rally' has seen US equity markets set new highs, as low volatility suggests growing investor complacency.

Likewise, US corporate bond spreads are approaching the post-crisis tights set in 2014, as yield-starved investors try to squeeze every basis point out of the market.  Some investors have recently begun to creep beyond traditional investment grade corporate bonds into BB-rated bonds, the highest rated high yield bonds.  Now may not be the optimum time to tactically allocate to BB-rated bonds as an asset class. Given current valuations, the gap between BB-rated bonds and BBB-rated bonds is at its narrowest level since 2007.  Furthermore, BB bonds might be poised to underperform if r...