Short Term High Yield Rates are attractive again @ 7% p.a.

Yields of US short term low grade bonds broke through the 10-years average of 5.7% and reached a level slightly above 7% in early May. The yield curve steepening by more than 200 bps over the last 6 months (please see chart 2 in the Alternative Credit Letter) has been the main driver of the increase of the yield level. Another driver has been the investor’s uncertainty about whether the economy and company earnings can withstand an aggressive Fed tightening to fight inflation. Absent of a severe recession ahead of us, yields on selective low grade bonds are back at attractive levels.