While corporate bonds may not look terribly attractive amid rising rate expectations, Goldman Sachs tips a good performance – but only in the short term.
"The yield differential between U.S. and European bonds, coupled with the stronger dollar should drive demand for U.S. credit," Goldman said in a report dated Friday. "Return potential in U.S. high-yield credit is attractive as spreads have been volatile recently, in part due to lower oil prices, and should narrow again." Bond yields move inversely to prices.
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It upgraded corporate credit to Overweight from Neutral on a three-month view, but is underweight on a 12-month outlook as it expects rising yields to weigh on returns.
Short term vs longer term
The Federal Reserve is widely expected to deliver its first interest rate hike sometime this year, in a step toward "normalizing" policy from the zero-interest-rate policy (ZIRP) started at the end of 2008 during the Global Financial Crisis. Analysts expect that once the Fed moves, bond prices will fall.