Moreover, investment-quality debt was given Federal Reserve Chair Janet Yellen’s stamp of approval after she stated prices were in line with “historical norms,” whereas speculative-grade debt looked risky.
Additionally, the falling yield in benchmark 10-year Treasuries has also made corporate debt more attractive to income-focused investors. Yields on 10-year Treasuries dipped to 2.38%, whereas LQD shows a 3.03% 30-day SEC yield.
Some observers also attribute the outperformance in investment-grade debt to longer maturities, which has helped related bond funds outperform as rates declined this year. Specifically, LQD has a 7.78 year effective duration while HYG shows a 3.9 year duration. However, in a rising rate environment, the longer durations would negatively impact returns.
For more information on corporate debt, visit our corporate bonds category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of LQD, JNK, and HYG.