Invesco Canada blog

Insights, commentary and investing expertise

Matt Brill | January 5, 2018

The high-yield sweet spot

For income-focused investors, yield remains incredibly elusive in most markets, with roughly 20% of global fixed income assets delivering negative yield. In Europe, that rises to about 40%.

The one place investors can find positive yield is the United States. Foreign institutional investors have been buying up the investment grade market here, driving yields lower. As a result, many yield-hungry investors have turned to high-yield corporate credit assets. 

The high-yield bond sweet spot

I believe BB-rated high-yield bonds still represent a sweet spot in the market.

Many U.S. pension plans and insurers are restricted to investment grade bonds. With these large players shut out of the high-yield market, valuations are far more reasonable, giving a strong research staff the opportunity to go hunting for potentially upgradable securities.

In the BB space, we’re still able to buy high-quality high-yield bonds with the potential for being upgraded to investment grade within the next year. In such an event, we would expect to earn a considerable return on the capital value of the bonds.

We’ve already seen this trend begin and we want to be out in front of these events.

Potential for upgrades

Some of the opportunities we see are in sectors that have rebounded with the broader economy. For example, the global financial crisis of 2008 originated in the real estate market.

During the crisis, many homebuilding companies were downgraded. Since then, U.S. demand for new homes has surged. I believe some BB-rated homebuilders could be upgraded to investment grade and we are over-weighted in the sector.

We have a strong credit analysis staff which is able to identify potential upgrade opportunities. Using our research, we strive to be six to nine months out in front of the market on these events.

Anytime you can get in front of a bond being upgraded to investment grade, it can be a material benefit to your portfolio.

The “core plus” approach

Investing in high-yield corporate credit assets requires a great deal of research and this is where the Invesco Fixed Income team can really shine.

In Invesco Global Bond Fund we combine up to a 25% allocation to higher-yielding bond sectors (what we call “Plus”) with a minimum 75% “core” allocation to high-quality investment-grade bonds. This “core plus” approach allows us to deliver the yield that is currently so elusive to investors, while still helping provide the safety that they need from their fixed income when severe market conditions hit.

To learn more about how Invesco can help address your fixed income challenges visit

Subscribe to the blog

Subscribe to receive notifications for: *

Do you want to subscribe in French?

Subscribe to receive e-mails from Invesco Canada Ltd. about this blog. To unsubscribe, please e-mail or contact us.

Credit spreads represent the difference in yield between two bonds. A contraction of credit spreads refers to a decrease in spreads between bonds.

All fixed-income securities are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the possibility that the issuer of a security will be unable to make interest payments and/or repay the principal on its debt. Interest rate risk refers to fluctuations in the value of a fixed-income security resulting from changes in the general level of interest rates. Non-investment grade securities (junk bonds) have greater risk than investment grade securities including the possibility of default.

A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO) of the creditworthiness of an issuer with respect to debt obligations, including specific securities, money market instruments or other debts. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest); ratings are subject to change without notice. NR indicates the debtor was not rated, and should not be interpreted as indicating low quality.

For more information on Standard and Poor’s rating methodology, please visit and select ‘Understanding Ratings’ under Rating Resources on the homepage.

Leave a reply

Your email address will not be published. Required fields are marked *