Credit market rally the catalyst for returning to bond-like performance

Credit markets have undergone a dramatic rally across the board since their March low. The more defensive sectors, such as utilities and energy, are now no longer offering anywhere like the compelling value we saw earlier in the year and are trading more or less fully valued.

Nonetheless, there remain sections of the bond market that continue to offer value. For example, yields on insurance names and financials still have attractive spreads and yields of over 6.5% in aggregate, while on subordinated financials, spreads remain well above historical levels and yields are around 8%-10% on Tier 1 debt. With governments acknowledging a healthy banking system is imperative to a lasting and meaningful economic recovery, banks should continue to offer opportunities. Although investors should not expect investment-grade bond markets to see a repeat of their recent str...