The Credit Risk You May Not Realize You’re Taking
When fixed income markets go through a credit cycle, such as what is occurring now, it can result in a market divergence leading to excessive credit risk. For example, over the last 15 years, investment grade and leveraged loan markets have become more concentrated in riskier credits while credit quality in the high yield market has improved. This type of shift may result in an investor taking on more credit risk than they are aware of.
Concentration in Highest Quality Credits Has Changed Over Time
Percentage in Highest Quality Portion of Market
Data as of 9/30/22. Source: ICE Bank of America Investment Grade and High Yield indices, Morningstar LSTA Leveraged Loan index.