Banking on investment-grade corporate bonds may not be right for the investor who likes quick returns, but it does the trick for CD, Treasury or agency buyers, a fixed-income specialist told CNBC Thursday.
“They [investors] may say, ‘I want the safety of a strong corporation, but I need the yield, something greater than what’s going on in the Treasurys,’ ” said Kevin Giddis, who has been at Morgan Keegan since 1988 and president of its fixed-income capital markets desk since March.
He said demand for investment-grade corporates is brisk.
“Those investors say, ‘I want an A-rated credit. I don’t want to jump off into the high-yield world, but I want to get paid more.”
While year-to-date the S&P 500 has fallen, corporates have yielded investors 9.44 percent. A Citigroup banker told CNBC Tuesday that high-yield bonds are offering returns between 8.25 percent and 8.50.
He favors those in the financial sector over the industrial sector, for their better spread and credit rating.
“You can get A to AA-rated credit. You only have to go out only about seven years. You can get a spread of 135 to 140 basis points over the comparable Treasury.”
“[It's] A 5-year bond, that’s short enough on the curve. You’re only picking up 200 basis points, close to a 4 percent yield, so you’re going to get yield and you’re going to get stability and you’re going to get a strong enough credit to weather any storm.”
To learn more about bond investing, specifically high-risk bonds, watch the "Bond Bets" special segment, Friday, August 20 on Street Signs, 2pm ET.