| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Bond Rally Has Legs, But Gains Seen Limited |
WSJ.com, December 15, 2009
NEW YORK --The high-grade corporate bond market staged a miraculous rally this year after the near-collapse of the financial system, but double-digit bond returns and another trillion dollars in new issuance likely won't be repeated in 2010.
"2009 was about buying risky assets at distressed prices, almost all of which benefited from the recovery in the markets," said Tom Murphy, sector leader and portfolio manager at Riversource Investments. "2010 will be about solid security selection."
Morgan Stanley analysts recommend high-grade bonds in 2010, with the caveat that returns will likely be "mere shadows of their stellar 2009 levels in the year ahead, as the glory of being a corporate bond investor in this cycle (sadly) begins to fade," they wrote.
Still, high-grade bonds are cheap, fundamentals are improving, and there is plenty of room for yield spreads to narrow--and for prices, which move inversely to yields, to rise. Financial and cyclical companies will offer the most value and most to gain from the economic healing underway.
Leslie Barbi, head of fixed income at RS Investments, a unit of Guardian Life Insurance, said corporate yield spreads, currently in the area of 200 basis points, are still well wide of normal recession levels, "so even in a slow-growth economy the spreads can narrow." She estimated that the average risk premium on high-grade corporate bonds would narrow by another one-fourth to one-half of a percentage point in 2010.
Analysts at J.P. Morgan said spreads could narrow even more, by three-fourths of
a percentage point at the end of 2010.
"Of course, you need to be careful about which sectors and credit you pick," Ms. Barbi said, "particularly in an environment with an enormous amount of legislative and regulatory uncertainty."
Investors, however, are hungry for yield and eager to take risks. Companies with investment-grade credit ratings will probably sell a record-breaking $1 trillion by the end of this year, analysts at Bank of America Merrill Research said. That amount would surpass the current record, $960 billion, sold in 2007.
While it may almost seem counterintuitive given the surge in volume, corporate bonds have posted double-digit returns this year. Total return for the Barclays U.S. Corporate Investment Grade Index is 19.11%, a far cry from a 4.94% loss in 2008.
In their zeal to buy bonds, investors were willing to accept smaller risk premiums. In the depths of the credit crisis, the average spread on a high-grade bond hit six full percentage points over essentially risk-free Treasurys. The premium, which compensates investors for the added default risk of corporate borrowers, has since closed to the current two percentage points.
Mr. Murphy said that with any Federal Open Market Committee action seemingly on hold until mid-2010 or beyond, high-grade bonds seem like a relatively safe play even if issuance does decline. Yields (4.52% on the Corporate Index as of now) are still attractive compared with the U.S. Treasury Index (1.94% yield) or most other indexes.
Ms. Barbi said corporate securities are still a good bet given a still-uncertain economic environment.
"Legislative uncertainty, with Congress considering a massive scale change in health-care and banking reform," could have an affect on credit markets, she said. "I'm not saying there's no risk, but overall corporates offer good relative value."
Relative is the key word. Corporate spreads--the yield over comparable Treasurys--are around 60 basis points above their 20-year average. But Treasury yields are so low that so-called all-in corporate yields, which are the yields that investors actually get, are still 230 basis points below their 20-year average.
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