If clients have income needs, then it makes most sense today to look at a balanced approach.

A balanced approach to income generation in today’s market offers about 70 percent of the yield of a US high-yield-only portfolio. That’s a pretty attractive distribution that we can build that protects much better against potential drawdowns due to credit-sensitive investments.

We’re 10 years into the cycle. The yield curve’s inverted. Valuations aren’t very provocative in US high yield. So, if we can build a portfolio that distributes 70 percent of that income, and do it in a balanced fashion, that makes a lot of sense in today’s markets.

Historically, when credit spreads widen in the high-yield world, they often mean revert very quickly and very sharply. And that’s where having a concentrated position in US Treasuries, preferably in a six-to-nine-year portion in today’s market, makes a lot of sense—to deliver income in a balanced fashion to protect against potential unforeseen credit-spread stress.

This is the type of market where you want to protect against downside for unforeseen geopolitical risk that investors aren’t quite fully aware of, potentially, yet. Limit how much concentrated exposure you have in issuers that could potentially default.

Other techniques when the US Treasury yield curve is flat: Move away from long-duration bonds. We don’t think the income per unit of duration makes a lot of sense to own 20- and 30-year US Treasuries. Concentrate your Treasury exposure in the six-to-nine-year portion of the curve. That offers much better yield per unit of duration.

Matthew Sheridan is Portfolio Manager—Global Multi-Sector at AllianceBernstein.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

© AllianceBernstein L.P.

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