Still, investors just don’t have many options for “safe” yield. Treasury yields are higher in May but the 10-year note is still paying less than 1.9%.
Yields on junk bonds continue to decline, driven by unprecedented demand and heavily influenced by the $80 billion in fixed-income assets being purchased by the Fed every month, says Fran Rodilosso, fixed-income portfolio manager at Market Vectors ETFs.
Even though yields in junk debt are extremely low on an absolute basis, the spread versus Treasuries isn’t out of control. The credit spread was extremely tight in 2007 before the financial crisis.
“The credit spread is actually high in comparison with other periods when [high-yield corporate] default rates were as low as they are currently, which is around 3%,” Rodilosso said.
iShares iBoxx High Yield Corporate Bond
Full disclosure: Tom Lydon’s clients own HYG and JNK.