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The bond bear market is the worst in more than 200 years, according to BNP Paribas’ global chief investment officer. Yields on the 10-year Treasury shot up to the 5% mark — a 16-year high on Oct. 19 , before dropping back down. It was last around 4.58% on Wednesday. Yields move opposite to prices. But the overall picture doesn’t change, BNP’s Edmund Shing told CNBC’s ” Squawk Box Europe ” on Monday. “Let’s be honest, financial conditions in the U.S. are still restricted even with the U.S. 10-year yield of 4.6%. They’ve not suddenly become loose just yet,” he said, adding that the U.S. Federal Reserve is really the most worried about service sector inflation, which is the “stubborn part.” “Remember, financial conditions are not only determined by the long rates, there’re also other factors in volatility, credit spreads, and so on, which also form part of these overall financial conditions,” Shing added. U.S. longest-duration bonds have suffered even more than stocks did in the 2008 global financial crisis, he said. The prices of 20- to 30-year U.S. Treasurys have fallen by 64% since mid-2020 — worse than the 57% in stocks during the financial crisis. “This represents the biggest US bond bear market in over 200 years,” Shing said. But, he said, one corner of the bond market is an opportunity for investors: U.S. “fallen angels” in the high-yield credit segment. A “fallen angel” in fixed income is an investment-grade bond that was downgraded to a “junk” bond — by one of the major ratings agencies — because of its issuer’s declining financial position. Junk bonds typically offer higher yields because they come with more risks. “Fallen angels have historically offered a superior risk-reward opportunity to traditional high-yield credit,” he said. “Over time, it has proven to have much lower default rates in high yields as a whole — so much lower risk, but actually very good returns, and returns almost in line with the high yield average, but at the national level, a lower level of risk,” he said. “So actually, you can still capture 8% plus gross yield of these fallen angels, but at a much lower default risk at a time when the economy is slowing.” Those keen on investing in “fallen angel” bonds can consider exchange-traded funds and funds that have been specifically developed to focus on such bonds. According to data from Morningstar, the following are among the top-rated ones.
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