Whether the recent shift in Treasury yields reflects a short-term event or the beginning of a real reversal, Mr. Popp suggests that the time may be right for investors to evaluate how an eventual rise in interest rates may impact their portfolios. In this environment, a careful migration of fixed income portfolios from duration risk to credit risk may be a prudent step for investors looking to capture additional returns, based on the following assumptions:

• Prospects of rising interest rates increase duration risk, and we think investors need to start thinking about repositioning their portfolios now to avoid future potential pitfalls;
   


• Although still muted, the strengthening economy has re-ignited inflation concerns; and
   


• Fundamentals for non-investment grade credit remain positive (e.g., low default rates, wide spreads and defensive value) despite a relatively sluggish US GDP growth rate.
   

Additionally, corporate balance sheets have experienced material improvements since the 2008 credit crisis, contributing to what may be a low default rate in the medium term. Mr. Popp sees that the favorable real yields and defensive characteristics offered by senior loans and high-yield bonds in particular may warrant an investment in the space.

The paper also offers a sample case study that gauges the impact of “moving beyond the core” for the risk-adjusted potential returns of fixed income portfolios.

For a copy of “Beyond the Core: Preparing Portfolios for a Post-Treasury-Rally World” or to watch the video, please contact Perrin Wheeler at perrin.wheeler@credit-suisse.com or visit the Asset Management site at www.credit-suisse.com.