If you’re suffering the low yields of Treasury bonds, there’s no need. Corporate bond exchange traded funds (ETFs) are kicking off juicy yields amid an increasingly stabilizing environment.
Corporate America appears to be righting itself after a months-long swoon. Among the signs that the worst of the downturn may be behind us: default rates among corporate bonds are falling, earnings have been decent and companies are issuing debt at record levels, reports Ben Baden for U.S. News & World Report. [Why Investors May Want Some Junk In Their Portfolios.]
Another selling point for corporate bonds is the threat of rising interest rates. While long-dated Treasuries will get hit when the Fed raises rates, while corporate debt won’t feel the same negative ipact. [How to Build a Bond ETF Portfolio.]
Instead of sticking with a low-yielding fund that’s heavy on an asset class like treasuries, consider an ETF like the iShares iBoxx $ Investment Grade Corporate Bond (NYSEArca: LQD), which currently yields 4.9%. The fund covers the medium-term investment-grade corporate bond universe.
If more risk is what you seek, consider the range of high-yield bond funds. According to the ETF Analyzer, there are three primary high-yield corporate bond funds:
- iShares iBoxx $ High Yield Corporate Bond (NYSEArca: HYG)
- PowerShares Fundamental High Yield Corporate Bond (NYSEArca: PHB)
- SPDR Barclays Capital High Yield Bond (NYSEArca: JNK)
However, Emma Wall for Telegraph UK reports that some managers are sounding the death knell for corporate bond funds, and this may frighten hundreds of thousands of investors who have bought corporate bonds in recent years in the belief that they were putting their money into a safe haven and getting a decent level of income.
No bull run can last forever, so have a strategy in place that you can use when this trend winds down. One simple strategy is trend following, which you can read more about here.
For full disclosure, Tom Lydon’s clients own shares of JNK and LQD.
Tisha Guerrero contributed to this article.