NASDQ - by Tom Lydon
What effect will the rise
in government bond yields have on corporate bonds and the exchange
traded funds (ETFs) that track them?
Government bond yields have been rising at an alarming rate. This is
indicative that fear is starting to leave the markets and some are
optimistic that an economic recovery is in sight. This could be good
for corporate bonds in that creditworthiness should recover along with
profits, states Richard Barley of The Wall Street Journal.
On the other hand, if government yields are rising because of the
huge amount of paper being printed to fund record deficits, then
corporate bonds could be in trouble. As long as corporate bond yields
remain in the 6%-7% range in a low-interest rate world, they will be
attractive. Corporate bonds offer a good opportunity for investors,
as companies’ cash holdings increase as a result of slimming down
operational costs, says an official at MFC Global Investment Management.
- iShares GS $ InvesTop TM Corporate Bond Fund (LQD): up 1.4% year-to-date. It yields 5.7%.
For more stories on corporate bonds, visit our corporate bond category.
For full disclosure, some of Tom Lydon’s clients own shares of LQD.
Kevin Grewal contributed to this article.
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