Investors typically try to limit their downside risk in the late stages of the credit cycle. We think a credit barbell strategy can help.
Credit barbells can minimize risk while still delivering solid income because they pair growth-oriented credit assets with US Treasuries and other interest-rate-sensitive securities. The approach is designed to help investors avoid leaning too far in either direction—and overexposing themselves to a single risk.
As the Display illustrates, a generic barbell—composed of 65% US Treasuries and 35% global high-yield bonds—has had meaningfully shallower drawdowns than a high-yield-only allocation over the past two decades.
This result is largely because the interest-rate exposure—or duration—that US Treasuries provide can dampen risk when growth slows, while still providing decent returns. Through May 31, barbell investors would have received nearly 80% of the return that high-yield bonds offered—as measured by YTW—with considerably smaller drawdowns.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.