Under the backdrop of the unrelenting quantitative easing, fixed income indexes continue to rise in the month of June, the Bloomberg Barclays Global Aggregate Bond Index went up 0.89%, US Investment Grade was up 1.96%, while Emerging Markets US dollar Bonds and US High-yield bonds also gained 2.49% and 0.98% respectively.
Entering the third quarter, as global concerns over the epidemic gradually die out, bonds became a less attractive option. Given the current low risk free rate, even with a widening credit spread we can still only earn limited return, unless we venture in the higher yielding bonds on the riskier side.
Therefore, one should be more selective in choosing bond names, with more emphasis on the credit quality itself, and eyeing for better opportunities when they arise. Possible yield enhancing options include new fallen angel bonds, which often give rise to one-off opportunities; specific company news regarding market events could also give rise to unique opportunities to further enhance yield without overly compromising risk control in the portfolio. Simply put, for investor investing in bonds, bear in mind the importance of quality when seeking risk diversification, while shorting duration when seeking extra yield.