Is It Time to Exit Bond ETFs?

Nov.10.09 | About: iShares iBoxx (LQD)

Although not as impressive as the stock market’s gains since March 9, in the last year Bbb-rated companies have returned 38%. So the next question becomes: what do we expect those bonds and related ETFs to do next?

Investment-grade corporate bonds may have lagged the overall broad market’s gains, but from a bond standpoint, their performance has been outstanding. Jeffrey R. Kodnett for Kiplinger asks what can be expected from single-A to triple-B bonds.

  • Companies are issuing 60% more bonds than one year ago.
  • Trading volume remains high while yields are down, which signals demand.
  • It may be too early to sell, although we’re late in the bond cycle, Kodnett says. For corporates to lose their luster, the currently negligible yields for cash alternatives — such as Treasury bills, bank deposits and money-market funds — will have to improve.

Investors appear to be losing their risk appetite and instead seek a dependable, steady income, much like the bond market yields. Be sure to mind the trendlines if you decide to go into the market, and have a strategy in place to keep losses at a minimum.

  • iShares iBoxx $ Investment Grade Corporate Bond (NYSEArca: LQD): up 8.9% year-to-date; yield 5.3%

For full disclosure, Tom Lydon’s clients own shares of LQD.