Finding fixed income yield without reaching for risk

Short-dated credit offers attractive income and total-return potential without requiring investors to take significant duration risk.

• Investment-grade corporate bonds yield around 5.5% and global high yield above 7%, making starting yields more attractive than they have been for most of the past decade.
• Aberdeen expects this decade to feature structurally higher inflation and bond yields than the quantitative-easing era, with greater government-bond volatility driven by geopolitical and fiscal risks.
• The preferred opportunities are high-quality corporate credit, investment-grade private credit, selected emerging markets and AAA, AA and single-A CLOs, while tight spreads argue for higher-quality exposures.
• The team focuses on short-dated BB and BBB crossover bonds, short-call Tier 2 and corporate hybrid securities, and favours Europe and emerging markets over the US, where spreads are tight and hyperscaler issuance is a negative technical factor.
• Global growth is expected near 3%, with the US around 2% and Europe near 1%; inflation should decline unevenly, defaults remain manageable and spreads finish the year moderately wider.

Takeaway: Investors should consider moving out of cash into short-dated, higher-quality credit, whose all-in yield can cushion moderate spread volatility, while recognising that geopolitical, fiscal and rate risks remain elevated.