November 09, 2009 at 3:00 pm by Tom Lydon
Although not as impressive as the stock market’s gains since March 9, in the last year BBB-rated companies have returned 38%. But it begs the question: what do we expect those bonds and exchange traded funds (ETFs) to do next?
Investment-grade corporate bonds may have lagged the overall broad market’s gains, but from a bond standpoint, their performance has been outstanding. Jeffrey R. Kodnett for Kiplinger asks what can be expected from single-A to triple-B bonds. (Other types of bonds in high demand).
- Companies are issuing 60% more bonds than one year ago.
- Trading volume remains high while yields are down, which signals demand.
- It may be too early to sell, although we’re late in the bond cycle, Kodnett says. For corporates to lose their luster, the currently negligible yields for cash alternatives — such as Treasury bills, bank deposits and money-market funds — will have to improve.
Investors appear to be losing their risk appetite and instead seek a dependable, steady income, much like the bond market yields. Be sure to mind the trendlines if you decide to go into the market, and have a strategy in place to keep losses at a minimum. (How to follow trends).
- iShares iBoxx $ Investment Grade Corporate Bond (NYSEArca: LQD): up 8.9% year-to-date; yield 5.3%
For more stories about bonds, visit our Bond ETF category.
For full disclosure, Tom Lydon’s clients own shares of LQD.
Subscribe to Our RSS Feed
