While intermediate-term yields are still lower than short-term yields, the difference is significantly less than that gap with U.S. The "A" and "Baa" rated corporate bond yield curves are noticeably less inverted than the U.S. In other words, aside from the surge in yields in 20 as corporate defaults were rising, yields are near their 20-year highs. In the five years leading up to that crisis, the index offered an average yield of 5.2%, lower than where it is today. Investors who have been hesitant to consider more intermediate- or long-term bonds while the Federal Reserve was hiking rates still have the opportunity to earn yields that generally haven't been available since before the 2008-2009 financial crisis. Over 90% of the index is made up of bonds with A and Baa credit ratings, so it has moderate credit risk. That index has an average duration-a measure of interest rate sensitivity-of seven years, meaning it has more interest rate risk than short-term investments. Corporate Bond Index closing at 5.5% on June 16th.
Yields generally remain near their highest levels since 2009, with the average yield-to-worst (the lowest possible yield that can be received on a bond with an early retirement provision) of the Bloomberg U.S. Investment-grade corporate bonds still appear attractive for investors looking to earn higher yields without taking too much additional risk. If the economy slows, as we expect, high-yield bond prices may fall sharply, but the prices of preferreds issued by the large, highly rated U.S. For those investors who are willing to take more risk to earn higher yields, highly rated preferreds appear more attractive than high-yield bonds. With the Federal Reserve expected to keep rates high for an extended period of time, potentially slowing down economic growth, we continue to suggest investors focus on high-quality investments.įor more conservative investors looking for income today, we prefer investment-grade-rated corporate bonds. Performance in the second half of the year may be similar, but we continue to see a greater risk of price declines with high-yield corporate bonds.
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