TINA (“there is no alternative”) was the primary argument for equities over bonds during the last years. That has changed now. While 2022 was an abysmal year for bond investors by a wide margin, it also made investment-grade credit very attractive again.
EUR corporate bonds currently yield 3.7% vs. a low of just 0.1% in mid-2021 while US corporate bonds now yield 5.1% vs. a low of 1.7% at the end of 2020. In comparison, the EUR Stoxx 600 and the S&P 500 currently offer dividend yields of 3.4% and 1.6%, respectively, while exhibiting much higher volatility. So, there is an alternative again (“TIAA”) to equities. Even though higher spreads are possible, credit now offers some protection in the form of a higher carry and a rates component that acts as a hedge in a risk-off environment. In addition, corporate bonds benefit from solid fundamentals and the supply glut of the past years has pushed out refinancing needs of companies even further.
