High-quality 30-year corporates outperformed in May

In May, demand concentrated on duration and high-quality credit, lifting longer-dated investment-grade corporate bonds, according to Jason Greenblath, vice president and senior portfolio manager at American Century Investments. He said the longer end of the corporate curve outperformed after April’s broader interest across the curve.

Greenblath identified high-quality single A and AA 30-year corporate bonds as a notable dislocation in the market, describing those issues as unusually strong relative to other parts of the corporate bond market. He attributed the move to investor appetite for longer maturities and higher-quality credits.

Lower-rated corporate debt underperformed in May. As credit ratings fall from BB to single-B and below, those bonds showed larger weakness, Greenblath noted, and he linked that to higher interest rates putting pressure on issuers with weaker cash flows. The market is separating companies that can handle higher-for-longer rates from those that cannot.

Sectors that continued to draw attention included airlines and business development companies. Greenblath pointed out that some of these names may benefit if oil prices decline. He also said oil-price risk remains present given limited progress toward a Middle East peace settlement and that the market appears to be pricing in higher oil for longer, a factor that can influence inflation expectations and interest-rate trajectories.

Tight credit spreads were a tactical concern. «Market index level spreads are at generational tights. We want to sell that,» Greenblath said, explaining that his team prefers trimming positions that reach fair value and keeping bonds with potential upside or specific catalysts.

American Century offers exposure to this strategy through its Diversified Corporate Bond ETF (KORP). The fund charges 29 basis points and posted a 5.5% return over the past 12 months. Greenblath emphasized disciplined portfolio construction, selling when spreads hit targets and focusing on higher-quality credits as spreads tighten.

Corporate bonds remain a component of fixed-income allocations: in the current environment, demand for duration and investment-grade credit lifted longer maturities, while economically sensitive, lower-rated high-yield names lagged.