Chart of the week: An indigestible amount of debt?

Quality hasn’t just deteriorated in the sterling-denominated corporate bond market, but the lowest-rated BBB segment has also grown substantially as a proportion of the euro and US dollar investment-grade markets, which are both far bigger. If the rate of downgrades in the next recession is similar to the rate in the previous one, the next rung down in the bond markets – high yield debt markets – could get swamped. As global growth shows signs of slowing, we have shifted towards favouring more defensive positioning within what we call equity-type risk, which includes these lower quality corporate bonds. We think it makes sense to shift into higher-quality corporate bonds that we consider liquidity-type assets – see more about why we think quality matters for corporate bonds in our latest InvestmentInsights.