BlackRock Strategists Cut ‘Unattractive’ High-Yield Credit

High-yield bond spreads have tightened to a point where strategists at the world’s biggest money manager prefer to take risks on equities instead.

“Spreads are now below where we see high yield as attractively valued,” BlackRock Investment Institute strategists led by Wei Li wrote on the firm’s 2021 midyear-outlook report published on Wednesday, downgrading the asset class to neutral after a strong performance.

Read more: BlackRock Strategists Lift European Stocks, Cut U.S. to Neutral

In an ultra-low interest rate environment, junk-rated borrowers have benefited from record cheap funding, selling a historic amount of sub-investment grade bonds in the first half of the year. But thinner coupons and tighter spreads mean the asset class is losing its appeal for some investors.

For BlackRock strategists, valuations in credit are “rich” and they prefer to take risks in equities.

“On a tactical horizon, we are neutral credit following the tightening in spreads in investment grade and high yield,” they wrote in the report.

As of December 31, BlackRock’s assets under management totaled $8.68 trillion, according to its webpage.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.