Goldman Sachs Advises Shift Toward Lower-Rated Corporate Debt

Goldman Sachs is advising investors to shift their corporate credit positioning away from higher-rated debt toward lower-rated cohorts. In a note published Thursday, the bank warned that high-quality rating categories, specifically AA in investment-grade and BB in high-yield, are increasingly sensitive to higher interest rates because of thinner spreads and longer duration profiles.

This sensitivity is compounded by an elevated supply of AI-related debt. The bank reports that BBB-rated debt has outperformed AA and A ratings in both U.S. dollar and euro markets. As a result, the bank is adopting a more aggressive stance toward moving down-in-quality in the euro investment-grade market and shifting its preference from BBs to Bs.

Despite the shift toward lower ratings, the bank moved CCC-rated debt to underweight. Goldman Sachs noted that the CCC group is highly idiosyncratic and requires careful credit selection.