It was not that long ago that investors complained endlessly to their advisors about the investment grade corporate bonds in their portfolio. The common complaint was that the bonds did not go anywhere (compared to stocks). Worst of all in the market sell of in the last year corporate bonds took their lumps too. Their lump was not as bad as equities and the recovery in investment grade corporate bonds has been much more swift than equities.
Who’s glass slipper
There is plenty of talk lately about bonds being the investment of choice in the near future. Surely the safety of investment grade bonds has become appealing but what else is driving the boom in bonds. According to David Oakley and Ed Hammond of The Financial Times in an article titled Global Corporate bond issues burst through $1,000bn level there are a few elements driving the worlds new found appetite for bonds. This is a first time (ever) in a single year that corporate bond issues have reached this level.
From servant to sexy
According to The Financial Times article, at the heart of the demand is banks are still being stingy with their money forcing companies to issue bonds to borrow. A second driver is investor demand. Investors can pick up a significant yield difference between investment grade corporate bonds and much lower yielding government bonds. So, the once boring, unloved investment grade corporate bond now looks like the belle of the ball.
ETF play
The iShares iBoxx Investment Grade Corporate Bond ETF (ticker LQD) is one option in the investment grade corporate bond area. This fund typically holds bonds from the US, Canada, Western Europe and Japan. Currently the fund is heavy on US bonds. The fund’s 30 day SEC yield is 5.29% and the fund’s share price is up just over 6% in the last three months. Additionally, the fund is well above both its 50 and 200 day EMA.
Chart courtesy of StockCharts.com
Disclosure Statement: ETFGPS is a blog that Navigates The World of ETFs. Sustainable Investment Strategies LLC is a Registered Investment Adviser in the State of Maryland, and does hold positions in the LQD ETF at the time of writing. Investors who are interested in money management services may visit the Sustainable Investment Strategies LLC web site.