Although Treasury bonds outperformed in 2011, investors that can handle more risk are looking to the corporate bond market for higher yields in 2012. MarketWatch reports that companies have been selling debt at historically low borrowing costs and investors have been satisfied with their ability to reduce costs and raise cash. [ETF Spotlight: High Yield Bonds ]
“We’re trying to stay pretty cautious and close to the vest, just not in flight-to-quality Treasuries because there are risks there regarding to U.S. fiscal imbalances and the dysfunctional political system,” Jason Brady, at Thornburg Investment Management, said.
Corporate bonds of all maturities gave back about 7.2% in 2011, according to Bank of America Merrill Lynch reports. The gap in yield between corporate bonds and Treasuries is 2.58%or 258 basis points, according to Merrill Lynch data. It went higher over the Summer as the Eurozone debt crisis weighed on markets. The average is around 190 points, reports Levine on MarketWatch.
The iShares iBoxx $ High Yield Corporate Bond Fund (NYSEArca: HYG) and and iShares iBoxx High Yield Corporate Bond ETF (NYSEArca: HYG) invest in corporate “junk” bonds. [ETF Spotlight: High-Yield Bonds]
Tisha Guerrero contributed to this article.