This GMO report by Joe Auth, Ben Nabet, and Mina Tomovska assesses fixed income valuations, warning that historically tight credit spreads elevate mark-to-market risk, especially in long-duration investment-grade bonds.
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Investment-grade corporates show minimal breakeven widening (11 bps) and long spread duration (~6.7 years), making them vulnerable to underperformance versus Treasuries.
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Structured credit, particularly in GMO’s Opportunistic Income Strategy, provides higher spreads (104 bps), similar or better credit quality, and shorter duration (1.2 years), reducing downside risk.
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Historical performance shows a consistent return premium over both risk-free assets and investment-grade bonds.
Explore the full report for detailed sector comparisons and risk-return implications.
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