NEW YORK (Reuters) - Top U.S. asset manager Vanguard is bullish on the corporate bond market but has been hedging against a hard landing for the U.S. economy and is exploring options to protect its credit exposure further, a senior portfolio manager said.

Spreads on U.S. investment grade debt, a measure of the premium demanded by investors to hold corporate debt rather than safer U.S. Treasuries, have narrowed over the past few months in a sign of hefty demand as investors seek to lock in high bond yields.

The spread on the ICE BofA U.S. Corporate Index, a commonly used benchmark for high-grade debt, hit a more than two-year low of 93 basis points last month, though it has been increasing since then and was last at 101 basis points.

Going forward, spread-widening bouts should be short-lived and could offer an opportunity to increase allocations to the asset class, Arvind Narayanan, Vanguard's co-head of investment grade credit and senior portfolio manager, said in an interview. "Unless something truly breaks in the economy," he added.

The world's second-largest asset manager expects the Federal Reserve will lower interest rates about three times this year, a forecast roughly in line with the central bank's latest projections but less dovish than the majority of bets in the bond market.

"Our base case is still above trend growth and above target inflation, which would mean a more patient Fed," Narayanan said.

Still, while credit markets have been buoyant over the past few months due to economic optimism, he has been layering in "a lot of hedges" against a possible downside, with low market volatility in December and January making protection cheaper.

One way to insure against worsening valuations has been through credit-index options, or options on indexes made up of credit default swaps, derivatives that pay out when a bond issuer defaults on its debt. Narayanan said he was also "actively exploring" other avenues, including hedging in the interest rate swaps market.

"We favored outright duration and curve positioning ... but given how much rates have moved and the curve has moved, now it's time for us to think of other opportunities," he said.

Vanguard had been "long duration," meaning it had increased its interest rate exposure, since late last year but that was reduced as U.S. Treasuries rallied in recent months. Benchmark 10-year Treasury yields, which move inversely to prices, have declined to about 4.1% from 5% in October.

"We feel that a lot of the upside is already priced in," he said. "So if you want to be long from here you're really playing for a recession."