Torsten Slok, chief economist at Apollo, said fixed-income yields have become genuinely attractive after a decade in which zero rates forced institutional investors to chase risk for income.
Money market funds now offer 3.5 percent. The 10-year Treasury yield sits near 5.0 percent—the first time in years that safe assets deliver real income. Investment-grade credit yields 5.7 percent, high yield 7.6 percent, and private credit 8.3 percent. CCC-rated credit has climbed back to 15 percent, compensating investors for duration and default risk at the bottom of the credit stack.
Slok noted that nominal yields across the fixed-income spectrum are starting to appear attractive without forcing investors into the riskiest segments to meet return targets.
The Federal Reserve's abandonment of forward guidance has introduced historic volatility into Treasury markets, according to Slok, with yields swinging sharply on data surprises. This stands in sharp contrast to the 2008-era aftermath, when sustained zero rates pushed investors into leveraged and illiquid alternatives simply to generate income.
The yield shift is prompting portfolio rebalancing. Money that chased risk assets during the low-rate era now has economic incentive to rotate into safer instruments. Companies with below-investment-grade ratings will likely face higher funding costs as investors demand greater compensation for credit risk rather than accepting thin spreads in exchange for equity-like returns.
