Bond investors who are wary of dipping too far into junk bond territory but want better yield payouts than Treasuries may consider investment-grade corporate bond exchange traded funds.
Currently, credit spreads are falling. Looking at corporate bonds, the diminish spread between government Treasury yields and corporate debt yields reflects investors’ lower perceived risks ahead. The Bank of America Merrill Lynch U.S./Corporate BBB Option-Adjusted Spread, which measures the borrowing costs of credit-worthy corporations, dipped to 2.07 percentage points in late April from 3.03 percentage points on February 11, reports Simon Constable for U.S. News.
“We are getting back to the idea that growth and inflation are reappearing,” Peter Tchir, managing director of macro strategies at Brean Capital, told U.S. News.[related_stories]
The ongoing low-yield environment and improving economic sentiment has helped push investors toward corporate debt. However, potential investors should be aware that corporate bonds have historically exhibited grater volatility than U.S. Treasuries due to the increased volatility in corporate cash flows and credit risks, along with greater liquidity risks.