Bond Veteran: Credit Spreads Near 30-Year Lows, Risk-Reward No Longer Attractive
Nashnova编辑部
Scott Colbert, overseeing more than $28 billion in bond assets, has cut credit exposure to its lowest since 2012 — his core call is that investment-grade spreads sit near a 30-year floor, making the cost of de-risking negligible while the downside from staying fully loaded is substantial.
What does a spread this thin actually mean?
U.S. investment-grade corporate bonds trade at only about 0.8 percentage points above Treasuries — close to the tightest level in nearly 30 years.
This means → a widening of roughly 12 basis points would erase an entire year's excess return from holding corporates over Treasuries.
In plain terms = you bear the risk that a company might default, yet the extra compensation is so slim that one small wobble can wipe it out entirely.
Colbert's own words: "I have never been paid so little for the risk I'm taking."
How exactly has he repositioned?
Corporate bonds fell from about 53% of the portfolio in 2021 to 39% by end of June — credit exposure at its lowest since 2012.
Treasuries and cash rose to 23%, up from under 16% five years ago; mortgage-backed securities — MBS, bonds partly backed by a government guarantee — more than doubled to 27%.
This reflects a clear migration toward safety: the portfolio's average credit rating climbed one notch from A+ to AA-, a historical high.
Doesn't cutting back risk missing the rally?
Colbert's logic is straightforward: with spreads this tight, trimming corporates gives up the smallest yield sacrifice on record.
This means → the opportunity cost of de-risking is minimal, but staying fully exposed leaves substantial room for loss if volatility arrives — the risk-reward is asymmetric.
The defensive stance has not yet paid off — Treasuries are down roughly 0.1% year-to-date, slightly trailing corporates. He is choosing patience.
What risk worries him most?
U.S. equity market capitalisation stands at roughly $82 trillion, or more than 250% of GDP — about 100 percentage points above the dot-com peak.
Colbert calls the AI boom a "bubble" and warns that a stock-market stumble could hit consumer spending via the wealth effect — falling share prices make households feel poorer, so they spend less.
He is clear this is not a recession bet; he actually expects growth to pick up in coming months. Put simply = he is not wagering on a crash — he just refuses to carry extra marginal risk when the compensation is this thin.
How much weight does this fund manager's judgment carry?
Colbert has managed the Commerce Bond Fund since 1994, making him the longest-tenured manager in Morningstar's category.
Over the past fifteen years his fund has outperformed 94% of peers, overseeing total assets exceeding $28 billion.
This signals that his defensive pivot is not beginner's anxiety — it is a deliberate choice by a multi-cycle veteran at a moment of extreme spread compression.
Content is for reference only, not financial advice.