Corporate bond exchange traded funds (ETFs) were favorites with investors last year, and this year looks like it might be even better.
At the height of the credit crisis in December 2008, companies had the disadvantage of having to pay about 1.5% more to lure U.S. investors to their bonds than borrowers seeking buyers elsewhere in the world.
That’s flip-flopped: now investors are demanding 1.66% more yield to hold U.S. investment-grade company debt instead of Treasuries, compared with an average 1.69% spread worldwide, reports Mike Shedlock for Fav Stocks. [Risk Easing In Corporate Bond ETFs.]
The shift is the result of growing confidence in the economic recovery. In fact, according to Bloomberg surveys, the U.S. economy is forecast to grow faster this year than Europe or Japan. [10 ETF Predictions for 2011.]
If you’re still concerned about default risk, you may be more comfortable with iShares iBoxx $ Investment Grade Corporate Bond (NYSEArca: LQD), which still offers an attractive 4.75% yield – better than most Treasury bonds.
For higher yield and higher risk, iShares iBoxx $ High Yield Corporate Bond (NYSEArca: HYG), PowerShares Fundamental High Yield Corporate Bond (NYSEArca: PHB) and SPDR Barclays Capital High Yield Bond (NYSEArca: JNK) might be right up your alley. All three offer yields currently well above 7%.
For full disclosure, Tom Lydon’s clients own shares of LQD.
Tisha Guerrero contributed to this article.
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.