Double A corporates are a safe haven in a storm, says RBC

Investors should buy double A corporate bonds as a safe haven in the current stormy markets, says RBC in a research note this morning. With investors switching out of equities, high yield credit, commodities and government bonds, they face a problem in figuring out where to put their money. The typical 3-5% yields on well capitalised corporates are an attractive alternative to cash, say the researchers.

For example, 10-year Walmart bonds yield 3.1%, while a longer-dated investment in Pfizer 2024 paper would produce a 3.8% yield. In Europe, EDF 20-year bonds carry a 5% yield. The bank calculates that the 10 corporates in its US double A basket have combined cash of $170 billion and face redemptions in the next two years of just $48 billion.

The main risk in this group of credits is the prospect of M&A activity, which could weak credit metrics, notes the report.