Credit Spreads Look Priced for Perfection, Thornburg Says

Portfolio Strategies Content Hub Credit Spreads Look Priced for Perfection, Thornburg Says DJ Shaw September 17, 2026 Corporate bond spreads, the extra yield investors demand for default risk, have tightened for three years even as delinquencies and bankruptcies climbed, according to Thornburg Investment Management. Key Takeaways: Corporate credit spreads have tightened even as delinquencies and bankruptcies have climbed. Ba-rated junk bonds are trading at investment-grade Baa’s historical spread levels. TPLS finds its yield in structured credit rather than stretching into lower-rated corporate debt. Thornburg’s report, “Fortune Favors the Disciplined,” found that Ba-rated junk bonds are trading at the long-term average spread for investment-grade Baa debt. B-rated bonds, in turn, are trading at Ba’s long-term average, the report found. That leaves investors with less cushion as default risk hasn’t disappeared, Thornburg said. If spreads widen back to normal, the report estimates high-yield bondholders could lose up to 1.5 years of income. See more: The Treasury’s Bond Buybacks Split Wall Street Views Investment-grade Baa-rated bonds have defaulted in more than 40% of years since 1994, according to the report. Speculative B-rated bonds have posted a default every one of the last 31 years. Thornburg also pointed to a mismatch between risk gauges and bond pricing. The Economic Policy Uncertainty Index has climbed over the past 18 months and remains near its pandemic-era peak. Yet credit spreads have tightened instead of widening — a reversal of how the two typically move together. With real yields on Treasuries and investment-grade bonds near multi-decade highs, Thornburg said that investors don’t need to reach into lower-quality credit for income. That combination of thin compensation and rising uncertainty is why the firm favors picking credit risk selectively, not broadly. How TPLS Navigates Tight Credit Spreads Christian Hoffmann, one of the report’s authors and Thornburg’s head of fixed income, also manages the Thornburg Core Plus Bond ETF (TPLS). The actively managed fund launched February 4, 2025, with $14.65 million in assets. Thornburg builds TPLS around a single rule: take on risk only when the yield compensates for it. According to the report, it’s the very discipline that is missing from today’s spread market. The fund avoids stretching into lower-rated corporate debt for extra yield, Thornburg explained. Instead, it uses a flexible, unconstrained approach across duration, sectors, and structures to find relative value elsewhere. Collateralized mortgage obligations and asset-backed securities made up nearly 30% of the portfolio as of August 31. The fund’s Bloomberg U.S. Aggregate Index benchmark holds almost none of either sector. That approach shows up directly in the fund’s yield. As of September 16, TPLS carried a 30-day SEC yield of 4.5%, Thornburg noted. Its yield to worst of 5.4% topped the benchmark’s 5%, while most of the portfolio stayed in investment-grade bonds. Since inception, TPLS has returned 5.08% at net asset value, edging past the Bloomberg U.S. Aggregate Index’s 5.04% gain, the report added. That discipline shows up in how broadly the fund spreads its risk across 345 individual securities, according to Thornburg. Its biggest single position, a U.S. Treasury strip, makes up just 8.32% of the portfolio. Everything else is spread across corporate, agency, and asset-backed debt. For more news, information, and strategy, visit our Portfolio Strategies Content Hub . RELATED TOPICS Corporate Bonds dj shaw Fixed Income Investment Grade Corporate Bonds Portfolio Strategies Content Hub Thornburg Investment Management TPLS treasury yields Yield Earn free CE credits and discover new strategies