Short Duration, High Quality High Yield: An Attractive Segment in a Rising Rate Environment
While inflation has ticked up over the past few quarters due to base effects and COVID-related stimulus, investors appear torn between whether higher inflation will prove transitory or persistent. Ultimately, rising rates are a risk for all bonds that have rate exposure. High yield corporate bonds have much lower rate risk than investment grade. However, rates are still a risk, leading some to consider strategies that are less rate sensitive but still offer an attractive spread. High quality, short duration high yield ticks all of these factors. It offers an attractive spread, lower exposure to rates, low defaults and historically high risk-adjusted returns.