With the economy uncertain and M&A activity on the rise, fixed income investors should look closely at specific companies, rather than sectors, when choosing which corporate bonds to buy.
"This is not the time for investors to just think about IG (investment grade) or high-yield as sectors. You want to look at name-specific," Peter R. Fisher, senior managing director of Blackrock's Fixed Income, told CNBC's "The Strategy Session" on Tuesday.
Two key metrics that investors need to think about are: "which high-yield companies are going to end up in investment grade status over the next three or four years [and] which investment grade companies are going to get downgraded," Fisher said.
When you look at companies, it's really the strength in their balance sheets. "If you're a bond investor you want to look at whether they are too leveraged and how much cash" they have, the Blackrock exec said.
But credit is still contracting in our economy. The government is borrowing more money all the time—"that part of the universe is rising. But part of what's driving Treasury yields lower and Treasury prices higher is we are shrinking the supply of credit," Fisher said.
Even so, "there are great opportunities in credit, both investment grade and high-yield," he said, adding, "if you want to look at three-to-five years, rates will be higher. Over the next one to two years, the yield curve may flatten some more."
For the short run, "Treasury markets are fairly valued for what the Fed has told us. But if you want to be a long term investor, hold for five years, then think about the long-end backing up," Fisher concluded.