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.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.