Look Beyond IG For Defensive Income Investments

2025-01-21 16:23:24 ET

Summary

• Investment-grade corporate bonds can be a defensive allocation but consider two key factors: wrapper and duration.
• To diversify exposure, explore other defensive sectors like Munis, CLO Debt, Agency MBS, and TIPS for better resilience.
• Munis offer tax benefits and attractive yields, while CLO Debt provides low duration and high subordination.
• Agency MBS and TIPS are strong defensive options with no credit risk and inflation protection, respectively, suitable for current market conditions.

In the last months, we have been discussing various defensive income options for income investors. One common question is whether investment-grade corporate bonds make sense as a defensive allocation. Our view on "IG" is "yes and." The sector can work as a defensive option with a couple of caveats (wrapper and duration) which we discuss below....

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