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Investment Grade Bonds: Attractive Investment Opportunity

 
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Investment grade bonds offer attractive investment opportunities in 2020.

Description: A chart showing the performance of investment-grade bonds in 2020 compared to the S&P 500.

Investment Grade Bonds: An Attractive Investment Opportunity in 2020 Heading into the last volatility catalyst of this year, price action in corporate Bonds has been quite interesting. According to a Credit Market Review by Papasavvas, the spreads for Investment-grade U.S. Bonds had increased for most of 2020, rising to around 170 basis points. Euro Investment-grade Bonds were indicated at 174 basis points at Friday’s close. That’s a lot of basis points, but they see the European high-grade corporate bond rally going strong.

The risk-reward combination for the corporate Bonds represents an attractive Investment opportunity. From the recent data, it is possible to see that Investment-grade Bonds have had a remarkable performance this year. Rising bond yields have put fixed income back in vogue as an Investment option. According to one analyst, “We favor high-quality Investment-grade Bonds relative to risk corporate Bonds.”

Preferred securities have many advantages over Investment-grade and distressed Bonds in the current market. According to Scapell, the preferred securities have a better yield-to-maturity than the Investment-grade Bonds and are also less volatile. Since yields rise when bond prices fail, this has made fixed income ETFs an attractive option for investors.

This is likely why the Investment Grade Bond ETF (AMEX:LQD) started to sputter last year, well before the bear market in stocks this year. Additionally, the iShares iBoxx Investment Grade Corporate Bond ETF provides an easy way to own over 1,000 corporate Bonds. iShares 20 Plus Year Treasury Bond ETF is another ETF that is worth looking into.

The performance of Investment-grade Bonds in 2020 has been impressive, but there are some potential risk. Interest rate risk, default risk, and inflation risk are all present when investing in corporate Bonds. investors should also be aware of the fact that there is no guarantee that the bond will be repaid at maturity.

The strong performance of Investment-grade Bonds this year has been a nice surprise for many investors. It has been a great way to diversify portfolios and protect against volatility. With Interest rate on the rise, fixed income investors may find this an attractive option to consider.

Labels:
investment grade bondscorporate bondspreferred securitiesfixed income etfsinterest rate riskdefault riskinflation riskAMEX:LQD

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