Chart of the week: Risk-taking is back on...

…but be wary of lower-quality bonds

Despite the v-shaped recovery in riskier assets, we still see equities outperforming government bonds. However, we think a cautious position in what we call equity-type risk is warranted, which includes most corporate bonds. We classify the safer corporate bonds (rated A-AAA), or credits, as liquidity-type assets because they can more easily be sold in times of market turmoil. Our analysis suggests recession is still unlikely this year. However, the yields on corporate bonds with a BBB credit rating relative to US Treasuries reaches its trough on average eight to 12 months before a recession. That leaves less of a window between the early warning signals and the peak in credit markets compared with equities. Read more on why quality matters in corporate bonds in one of the articles in our latest InvestmentInsights.

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