Corporate Bond War: Quality Trumping Junk (LQD, JNK)

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The world of high-yield corporate bonds and the world of investment-grade corporate bonds may be nearing another near-term inflection point.  Many retail investors have to go find yield elsewhere outside of the Treasury market, and most investors are still very risk-averse when it comes to credit quality. The allure of much higher yields often has to be tempered by credit quality and that has investors currently focusing on investment-grade corporates.

The iShares iBoxx $ Investment Grade (NYSE: LQD) ETF currently screens out with a yield north of 4.4% and today is going to be a new index high.  Shares had a previous high of $116.41 and the new price hit a high of $116.57 today.  The yield fluctuates here because of monthly payments, so you will have to screen your own yield analysis.

The SPDR Barclays Capital High Yield (NYSE: JNK) ETF currently screens out with a yield of about 7.7%, but this has fluctuating payments also and you cannot just trust the past dividends payment each month as always remaining static.  While this is within three percent or so of its 52-week high, this junk bond ETF is down two-cents at $39.38 and the 52-week trading range is $34.09 to $40.93.  The shares have been weak in the last week after it looked as though it was poised for a new high.

Where this gets very interesting is the longer-term.  If the ‘risk-on’ trade is going to work and if the interest rates are going to remain low for another two years, today’s action and the action over the last week might not last.