This week we interview Peter Higgins about high yield bonds and the next credit event. If you are not worried about the next credit event, it could clean you out. Here are some topics we discussed.

• When to Invest Amidst Market Volatility? Now: The “power of the coupon” pays investors for an early arrival, not for being fashionably late. 

• Generational Market Opportunity: “Income” is back in fixed income and investors benefit from an extremely attractive entry point now after historically poor performance in 2022. 

• “Sticky” Inflation Prolongs Higher Rates: The seesaw rate moves of the past have ceased for a bit as sticky inflation has kept interest rates higher for longer. 

• Don’t Fight The Fed: The Fed’s target rate remains higher than market expectations based on the Fed Fund Futures implied interest rate, so why are markets fighting the Fed and what does this mean for investors? 

• Recession or not? AND, if so, then when? Historically reliable barometers for pending recessions are diverging, but Peter can help read the tea leaves for investors on the odds of a recession. 

• Implications for the Yield Curve: An inverted yield curve typically signifies recession, but Peter sees significant distortions from the recent Debt Ceiling noise and inflationary data. 

• Spread vs. Yield: Credit spreads aren’t pricing in recessionary risk, so investors must be more fixated on high all-in yields. 

• Rollover risk: At 5.39%, six-month Treasury Bills are tempting, but that simple strategy puts investors at risk of lower rates with future T Bill reinvestments. And they won’t capture the capital price appreciation gained from longer duration bond funds. Peter can explain the math. 

• Investment Grade Sweet Spot: With recession likely and spread to widen, investment grade slash/yield ratings (BBB/BB) provide some protection from further spread widening. But they are also exceptionally high yield (+/- 6%) over several year on high quality bonds where there's very little default risk with investment grade corporate bonds.