Corporate debt is pricey now, but some 'rising star' bonds could pay off nicely for investors

New York Stock Exchange (NYSE) at Wall Street on January 12, 2021 in New York City.
Angela Weiss | AFP | Getty Images

The bonds of U.S. corporations are in high demand and therefore pricey in a yield-starved world, but there are some places investors can still look in the corporate bond market for potential reward.

One place is the highest-quality rung of the junk bond market, the BB-rated companies that are no longer investment grade but want to be again.

The economic shock of the pandemic and lingering impact on many industries pushed many companies from investment grade to junk in 2020. These companies are known as fallen angels.

"The sweet spot in credit right now is actually BB," said Hans Mikkelsen, Bank of America's head of high-grade credit strategy. He said large capital structure issuers, rated BB, want to move back up to investment grade, and companies in that situation focus on improving their balance sheets and taking steps to make themselves more attractive.