Mar 31, 2018
We recently chatted with Sandy Liang, President, Purpose Investments Partners, and high yield fixed income portfolio manager to discuss his thesis on credit risk vs. interest rate risk for investors seeking yield in a rising rates environment.
"Interest rate risk, or the risk of bond investments going down in value from a change in rates, is more worrisome right now than credit risk, or the risk that a company won’t be able to pay you back," says Sandy Liang.
"A great example of this is the Taper Tantrum of 2013. The beginning of the wind-down of QE in the U.S. at that time prompted an interest rate scare," says Liang. "In that calendar year, long-term Treasuries in the U.S. (maturities of 20+ years) lost investors 13%. Mid-term Treasuries (maturities of 7-10 years), meanwhile, lost investors 6%. The U.S. high yield corporate debt market, on the other hand, returned a positive 6% in the same period of time (source: Bloomberg, using ETFs TLT, IEF and HYG)."
What follows in this podcast is an enlightening, and eloquent conversation with Sandy Liang, providing a clear-eyed view of how to benefit from investing in credit in the rising rate environment.