Watch the spread !

The spread between the US BBB-rated corporate bond yield and the 90-day US T-Bill yield is at a historical low seen only on 5 other occasions over the past century. We agree the fact the duration of the corporates is longer while the yield curve is inverted explains part of this phenomenon. However, we also conclude there is hardly any remuneration for BBB credit risk at a moment where there are clouds hanging over the US economy. In the portfolios we manage, we therefore go for short term Treasuries while being extremely selective in the corporate bonds we invest in.