Investment grade corporate bonds and the exchange traded funds (ETFs) that track them might see a better second half of 2009 if analysts are prove to be correct.
U.S. company debt is paying a higher yield than Treasury bonds, leading to a resurgence in corporate bonds. In the first half of this year, such bonds rated BBB or higher by Standard & Poor’s gained 9.24% in the first half of the year. In the second half of last year, they lost 6.05%, says Deborah Levine for MarketWatch.
To answer the question of whether it’s too late, one expert points to spreads between corporate yields and Treasuries. Right now, the spreads are near or higher than they were at the worst point of the 2001-2002 recession, signalling to him that it isn’t too late.
iShares GS $ Invesment Grade Corporate Bond (LQD) is above its 200-day moving average. If this is an area that’s right for you, be sure to have a stop loss in place if the trend reverses itself. It’s up 2.4% year-to-date and yields 5.59%.
As a point of caution, some market analysts are calling for a 8% default rate for investment-grade corporate bonds, but 5% annual default rates are more likely. Bernard Condon for Forbes reoprts that the losses in stock prices are still scathing and the S&P 500 is at the same level it was a dozen years ago, the debate is raging over whether stocks are worth owning at all.