"We are at the beginning of a rotation as investors come back into credit. With the rapid move in front-end rates, the curve has repriced credit to attractive levels," said Salim Ramji, global head of exchange-traded funds (ETF) and index investments at BlackRock.
iShares iBoxx Investment Grade Corporate Bond ETF and iShares High Yield Corporate Bond ETF are on track for quarterly gains of more than 3% in the fourth quarter after falling 20% and 14% respectively this year.
"We don't know exactly when the peak in inflation will be but I think that's not a million miles away," said Jim Leaviss, chief investment officer for public fixed income at M&G Investments.
"If we're at this turning point then the entry level you get by buying investment-grade credit in the (United) States looks really attractive."
The jump in bond yields, which move inversely to prices, has also made corporate credit more attractive to investors looking for income after years of low interest rates, Ramji said.
The yield spread on the ICE BofA U.S. Corporate Index - which indicates the premium investors demand to hold corporate bonds over safe-haven U.S. Treasuries - has fallen to 145 basis points from October, when it spiked to 171 bps, the highest in over two years.
Both Leaviss and Ramji expect the Fed to be near the end of its hiking cycle, with Leaviss noting that corporate bond issuers appeared relatively well-placed to withstand higher borrowing costs as default rates were still low.
"Where we've been short risk across bond portfolios, we've added risk back in," Leaviss said, adding "there's good things happening wherever you look in bond markets at the moment."
(Join GMF, a chat room hosted on Refinitiv Messenger: https://refini.tv/33uoFoQ)
(Reporting by Lisa Pauline Mattackal and Nishara Pathikkal in Bengaluru and Divya Chowdhury in Mumbai; Editing by Andrea Ricci)
By Lisa Pauline Mattackal and Divya Chowdhury
