Warren Pierson, Co-Chief Investment Officer of Baird Funds, joined Zoe Hunt, Host of RIA Channel, to discuss opportunities across fixed income, the municipal bond market, and corporate bond issuance tied to AI data center development.
Pierson encourages investors to embrace fixed income while maintaining their normal risk profiles. Despite tight spreads across sectors, Pierson sees attractive yields and return potential in the bond market without requiring investors to take significant additional risk. Within investment-grade corporate bonds, he highlights selective opportunities in the financial sector, particularly U.S. and international banks issuing dollar-denominated debt.
As the Treasury curve flattens, Pierson notes that the municipal curve remains much steeper than the taxable curve, creating attractive value. He also expects infrastructure investment and repair needs to drive additional municipal issuance in the coming years, potentially creating further opportunities.
Pierson also emphasizes the unprecedented amount of corporate bond issuance tied to AI data center development. While many issuers are high-quality companies with the cash flow to support the debt, he notes there may be additional risk in the sector. With the potential for both winners and losers, Pierson says he is sitting out many deals due to tight spreads and terms that are not favorable enough for bondholders.
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