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Seizing the Opportunity in Corporate Bonds

 

The recent sell-off in risk assets caused steep price declines in corporate bonds in a manner not seen since the great financial crisis. The breakdown of market mechanics was a key driver of declines in high-quality bonds as trading volumes decreased and investors were willing to sell bonds to raise cash at any cost.

The impact of COVID-19 has been extraordinarily hard to measure thus far, and this uncertainty will likely continue to exist. But this lack of clarity is also creating opportunities in corporate bonds. Credit markets have retraced a portion of their losses in April, but price levels are still considerably lower than those prior to the crisis.

Active managers who can successfully navigate this environment can present investors with potential for capital appreciation while providing less drawdown risk if the market falls back to its lows from earlier this year.

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