While crossover bonds are not new, investing in the crossover segment as a strategy is gaining popularity, especially among investors with a keen focus on risk-adjusted returns. This is because crossover corporate bonds have a long history of providing high yield-like returns with high grade-like volatility.
What's more, crossover bonds have a low correlation to U.S. Treasuries, which is top-of-mind for many investors anticipating interest rate hikes from the Federal Reserve. While investment grade bonds alone have achieved similar risk-adjusted returns, their correlation to Treasury rates is more than double that of crossover bonds.
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