Where Does the Real Value Lie for Fixed Income? Credit Suisse's Asset Management Division Releases New White Paper on Preparing Portfolios for a Post-Treasury-Rally World

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May 08, 2012, 10:25 ET

NEW YORK, May 8, 2012 /PRNewswire/ -- In the current low-growth environment, many investors are faced with the following concern: Where does the real value lie for fixed income? In a new white paper and accompanying video from Credit Suisse's Asset Management division entitled, "Beyond the Core: Preparing Portfolios for a Post-Treasury-Rally World," John Popp, Global Head and Chief Investment Officer of the Credit Investments Group, suggests that in this environment, investors can benefit from an allocation beyond core fixed income, especially at the non-investment grade end of the spectrum.

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Whether the recent shift in Treasury yields reflects a short-term event or the beginning of a real reversal, Mr. Popp suggests that the time may be right for investors to evaluate how an eventual rise in interest rates may impact their portfolios. In this environment, a careful migration of fixed income portfolios from duration risk to credit risk may be a prudent step for investors looking to capture additional returns, based on the following assumptions:

Prospects of rising interest rates increase duration risk, and we think investors need to start thinking about repositioning their portfolios now to avoid future potential pitfalls;
Although still muted, the strengthening economy has re-ignited inflation concerns; and
Fundamentals for non-investment grade credit remain positive (e.g., low default rates, wide spreads and defensive value) despite a relatively sluggish US GDP growth rate.

Additionally, corporate balance sheets have experienced material improvements since the 2008 credit crisis, contributing to what may be a low default rate in the medium term. Mr. Popp sees that the favorable real yields and defensive characteristics offered by senior loans and high-yield bonds in particular may warrant an investment in the space.

The paper also offers a sample case study that gauges the impact of "moving beyond the core" for the risk-adjusted potential returns of fixed income portfolios.

For a copy of "Beyond the Core: Preparing Portfolios for a Post-Treasury-Rally World" or to watch the video, please contact Perrin Wheeler at [email protected] or visit the Asset Management site at www.credit-suisse.com.

Credit Suisse AG

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Asset Management
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SOURCE Credit Suisse AG