Current market conditions may ultimately translate into a brighter future for corporate bond and exchange traded funds (ETFs).
The high-grade bonds are being priced with a highly pessimistic view of the future. Long-term maturity corporate bonds could reward dauntless investors with large spreads producing high yields, reports Robert Huebscher of Advisor Perspectives.
High-paying bonds may be tantalizing with their near double-digit yields. Nevertheless, these bonds may suffer from risks with deteriorating economies, rising inflation, widening spreads, and the chance of defaults.
If you are pondering the possibility of high-grade debt, high-grade 10-year maturities are being recommended for their liquidity and extensive offerings.
High-grade bond funds may yield less than individual bonds. The tradeoff for a lower-yielding fund would be a diversified exposure, liquidity, real market values, and much more information covering credit.
The funds for high-grade bonds do not provide exclusive exposure to high-grade corporate markets and historical year-to-date performances may not prove to be a useful guideline for selecting a fund.
The safer bet for the risk-averse is a short-term investment. But for those who are comfortable with more risk could consider looking into long maturities if they feel that they’re right for them.
A sample of some corporate bond ETFs:
- iShares iBoxx $ Invest Grade Corp Bond (LQD): down 9.7% year-to-date; yield 6.5%
- iShares iBoxx $ High Yield Corporate Bondd (HYG): down 23.8% year-to-date; yield 11.1%