The New York Times Conrad De Aenlle published a story over the weekend on the current opportunity in corporate bonds.
In the article Corporate Bonds Offer Opportunity, Aenlle summarizes the view of some bond specialists who contend that prices are so low and yields so high that they are immune from anything short of disaster — and maybe even that, too.
Investment-grade corporate bonds, for example, yield close to 5 percentage points more than Treasuries. Just after the 2001 recession, the spread peaked at about 2.5 percentage points.
A standardized basket of high yield corporate bonds recently yielded 14 percentage points more than Treasuries, 4 percentage points more than in 2002 or during the 1991 recession.
Not all strategists see the current bond market in the same light. Aenlle notes that Martin J. Mauro, a strategist at Merrill Lynch, counsels investors to stick with Treasuries and debt issued by federal agencies.
The $9 billion Lehman Aggregate Bond Fund (AGG) holds investment grade U.S. Government bonds and investment grade corporate bonds and carries a 30-Day SEC Yield of 4.3%.
A very low cost option for bond market exposure is Vanguard’s Total Bond Market ETF (BND) which owns a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States and yields 4.7% and an annual expense ratio of 0.11%.
The SPDR Lehman High Yield Bond ETF (JNK) yields 16.8% and owns high-yield corporate bonds using the middle rating of Moody’s, S&P, and Fitch, respectively, and have $600 million or more outstanding face value.