The safest corporate bond exchange traded funds have attracted their fair share of interest this year, with U.S. investment-grade corporate debt now trading below pre-recession levels, but the outperformance may not last.
Bonds have generated better returns than riskier debt for the first time since 2010 and the second time since 2006, the Wall Street Journal reports.
The iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) has gained 5.4% year-to-date, whereas the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) is up 4.0% and SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) rose 4.2%.
LQD tracks investment-grade corporate debt with credit ratings of BBB or higher. The ETF has a 7.69 year duration and a 3.07% 30-day SEC yield.
HYG and JNK track speculative, or junk, bonds. HYG shows a 3.95 year duration and a 4.34% 30-day SEC yield, and JNK has a 4.21 year durationa nd a 4.73% 30-day SEC yield.
U.S. investment-grade corporate bonds have returned 4.8%, accounting for both interest payments and price appreciation, while the Barclays U.S. corporate high-yield bond index returned 4.3%.
Top-rated, investment-grade U.S. corporate debt is now trading at or even below pre-recession levels. New issue paper has cleared the market at spreads of 30 to 80 basis points, compared to benchmark Treasuries, according to Investing.
Bond prices have an inverse relationship to yields, so rising prices corresponds to falling yields.