With yields in U.S. Treasury bonds hovering around their historic lows and improvements in corporate earnings, investment interest in corporate bonds and related exchange traded funds has surged, depressing corporate yields to new lows.
According to a Barclays bond index, investment grade U.S. company debt yields are at all-time lows, reports Katy Burne for the Wall Street Journal.
The yield on the Barclays U.S. Corporate Investment Grade Index dropped to the historic low of 3.34% Tuesday. According to the J.P. Morgan Domestic High Yield Index, yields on U.S. junk bonds have lowered to 7.4%.
The iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) has a 30-day SEC yield of 3.53% and the iShares iBoxx $ HY Corp Bond Fund ETF (NYSEArca: HYG) has a 30-day SEC yield of 6.62%.
In comparison, the yield on the 10-year Treasury note is around 1.9%, and the iShares Barclays 7-10 Year Treasury Bond Fund ETF (NYSEArca: IEF) has a 30-day SEC yield of 1.56%.
According to Thomson Reuters’ Lipper data, investment-grade bond mutual funds and ETFs experienced eight consecutive weeks of inflows, and junk bond funds saw 10 weeks of inflows as of Feb. 8.
Investors are beginning to move back into riskier corporate debt as the U.S. recovery grows strength. Analysts believe that the new low indicates investors have grown accustomed to the Eurozone crisis and potential Greek default.
“I think a level of complacency has certainly become part of the market’s psyche,” Adrian Miller, senior vice president for global markets strategy at GMP Securities, said in the report. “The question is, while the risk [of]a Greek default has been materially reduced over the past two months, is the risk really gone?”
iShares iBoxx $ Investment Grade Corporate Bond ETF
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Max Chen contributed to this article.