It’s a similar picture in the investment-grade space. Of the 17 occasions since 1990 when spreads rose past 250 basis points, returns afterward were positive 14 times with a median of 15%. It’s one reason UBS Wealth says it’s neutral on stocks and sees opportunities in credit.

As far as Kevin Thozet at Carmignac is concerned, corporate bonds are attractively priced. The firm started increasing credit exposure at the end of March in part because of Fed support but also thanks to corporate actions designed to shore up balance sheets.

“Some bonds are offering yields which are in fact similar to the expected long term returns of equity markets,” the strategist said. Meanwhile, when listed companies cancel dividends it “de facto favors credit holders,” he said.

Dividend Hit

Amid a collapse of consumer demand caused by the lockdowns being used to contain the virus, companies were always likely to slash spending. Both buybacks and dividends have been victims, further undermining the appeal of stocks.

“For 2021 it will become harder and harder to get dividends out of equities,” said Francesco Sandrini, head of multi-asset balanced, income and real-return strategies at Amundi SA. “To compensate a little for this factor we have the fact new issuance of corporate bonds -- high-yield, emerging markets -- are coming out with much higher coupons than before.”

Much of the appetite for company debt stems from a view that equities look over-valued. Perdon at Arbuthnot Latham, for instance, reckons the asset class looks ensnared in a bear market rally, and another sell-off is likely.

Yet by some measures, equities look appealing. The S&P 500’s current earnings yield versus investment-grade credit remains notably higher compared to much of the past three years.

“Credit spreads will come down as investors search for yield and realize that the authorities have taken out credit risk from the market,” said Chris Iggo, CIO of core investments at Axa Investment Managers, in a note. “Credit might be the best bet for the next year, but that will increase in the equity risk premium even more and the longer-term bet has to be on growth and stocks.”

Meanwhile, shares are also getting a boost as central bank stimulus unleashes animal spirits. A long-short strategy betting on the most leveraged companies has made money for three straight weeks, the best run since January.