Category: Financial Professionals

Credit Spreads: High Quality Ideas Using Low Quality Bonds

Many investors rely on fixed income securities, especially those with conservative risk tolerances. In times of low interest rates and elevated interest rate risk, bonds with credit risk can be a useful tool to help mitigate these concerns. In a sense, investors have the opportunity to swap a portion of their interest rate risk for credit risk, ultimately decreasing a bond portfolio’s total interest rate risk. This tradeoff may not make sense in every environment or for every investor. However, bonds that contain credit risk present another option for income generation and risk management, as opposed to relying solely on very interest rate sensitive bonds.

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