Buy US High-Yield Debt as Inflation Hedge, Nuveen’s Malik Says

(Bloomberg) — It’s a good time to put money into assets that benefit from an inflationary environment, such as US high-yield debt, according to Nuveen Chief Investment Officer Saira Malik.

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Buying high-yield debt today pays an 8% coupon, a spread that will likely narrow over the long term, providing a higher total return, Malik said during an interview on Bloomberg Television’s “Wall Street Week” on Friday.

“We’re looking for areas, given the environment out there, where you are getting the best bang for your buck,” Malik told host David Westin. “Even though we do predict a recession, you’re getting paid to wait in high yield with that kind of return.”

A US corporate high-yield index has fallen 11% this year through Friday compared with a 12% decline for the broader US bond aggregate index.

The losses are smaller than the S&P 500 Index’s 15% slump this year. The US stock gauge ticked higher this week, snapping a three-week losing streak and defying hawkish remarks by Federal Reserve officials and recession worries. Traders almost fully expect another 75-basis-point hike by the Fed on Sept. 21, with a key indicator coming on Tuesday when the Bureau of Labor Statistics reports new inflation data.

Northern Trust Corp. Chief Investment Strategist Jim McDonald said stocks are unlikely to keep rising because too many factors are holding back growth. Factors include likely recessions in Europe and China and a 50-50 chance in the the US; more Fed rate hikes; and probable persistent inflation, he added.

“We think the environment is probably not as robust as this week’s market indicates,” McDonald said.