Risk taking needs to be remunerated

The US corporate bond spreads, i.e. the difference between the aggregate yield of US corporate bonds and the Fed Funds rate, is currently negative. This may not be surprising as the Fed Funds Rate was increased to the 5-5.25% range yesterday. It however implies that, on aggregate level, the US corporate bond investor is not remunerated at all for taking credit or duration risk. Such a situation is rather unseen: the last time the remuneration of the corporate bond investor approached 0% was at the eve of the Great Financial Crisis. We all remember what happened to the spread during the crisis ! At ECP, we believe that risk taking needs to be remunerated properly and we continue to be very prudent and selective in what type of bonds we pick for our client’s portfolios.