Investors Should Ditch BBB-Rated Securities As Risks Grow: UBS

Investors should remain cautious about lower-quality credits and underweight BBB rated securities, particularly longer dated issuers at risk of fallen angel status, notes a report from UBS.

Stephen Caprio and Matthew Mish of UBS in their January 14, 2016 research note titled: “2016 US IG Outlook: How The Dominos Will Fall?” prefer A-rated credit, particularly longer-duration issues.

Substantial growth in total IG corporate universe from the growth of more risky BBB-rated securities

Caprio and Mish reckon the post-crisis macro paradigm of Fed quantitative easing and the investor bid for yield has greatly expanded the size of risky BBB corporates. The analysts point out that the total IG corporate universe has grown 110% from $2.08 trillion in January 2009 to $4.35 trillion...