Global income bonds: finding the credit sweet spot

The BBB/BB crossover segment offers income investors an attractive middle ground between lower-yielding investment grade bonds and riskier high yield.

• BBB-rated bonds sit at the lower end of investment grade, while BB-rated bonds are at the higher-quality end of high yield; historically, this segment has delivered returns closer to high yield with risk characteristics closer to investment grade.
• Higher policy rates and government bond yields continue to support income levels that were unavailable for much of the post-financial-crisis period, while higher starting yields can cushion returns during volatility.
• Default risk within high yield has historically been concentrated among the weakest issuers, making credit selection more important than simply maximising portfolio yield.
• Shriram Finance illustrates the rising-star opportunity: the Indian lender strengthened its business and balance sheet, and its rating improved from BB+ to BBB-.
• A global approach can diversify across economies, sectors and credit cycles; Eutelsat benefited from increased strategic importance, European communications and defence demand, and supportive government funding.

Takeaway: Investors seeking income need not choose between low-yielding high-quality bonds and materially riskier high yield; carefully selected global BBB/BB credits may offer a more balanced risk-reward profile, although the examples are illustrative rather than recommendations.