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Three reasons why we prefer investment grade credit to US Treasuries
Flavio Carpenzano
Investment Director

Given the generous level of yield currently offered by US Treasuries (UST) and the relatively tight spreads within investment grade corporate credit, would it not be better to just buy UST?


For some investors, this might be the right choice. Specifically, we think investing in UST makes sense if you have a strong view the economy is heading into a deep recession. However, 2023 has taught us that recession in the US is far from a done deal, and, in fact, there is still a meaningful probability of the economy remaining resilient and continuing to avoid a recession in 2024.


In this scenario, we think IG credit provides the better opportunity. This paper outlines three reasons why we believe this is the case:
 

  • Historical analysis shows that during most periods, global IG corporate bonds have delivered better results than UST.
  • Credit spreads are close to their historical average, but dispersion remains elevated.
  • Global corporate bonds can provide the strategic core fixed income allocation of a portfolio as they provide income, capital preservation, and diversification from equities.

Five year rolling results of corporate bonds and US Treasuries

Five-year-rolling-results-of-corporate-bonds-and-US-Treasuries

Source: Bloomberg. US Treasuries represented by Bloomberg US Treasuries. Global IG Corporates represented by Bloomberg Global Aggregate – Corporates USD hedged. Based on five-year rolling returns using monthly values. Data as at 22 October 2023


Flavio Carpenzano is an investment director at Capital Group. He has 19 years of industry experience and has been with Capital Group for three years. Prior to joining Capital, Flavio worked as a fixed income senior investment strategist at AllianceBernstein. Before that, he was a product manager at PIMCO focussed on credit strategies. His early career also includes a role at the Bank of England as an analyst in the markets department. He holds a master's degree in finance and economics from Università Bocconi. Flavio is based in London.


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Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.

Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.