BlackRock Inc., Fidelity Investments and Charles Schwab Corp., which together manage more than $5 trillion, are all bullish on corporate debt.
The Federal Reserve’s pledge to keep interest rates at a record low through late 2014 means investors should take advantage of the extra yield, or spread, offered by asset-backed securities, commercial mortgage-backed debt and high-yield bonds in the U.S., according to BlackRock. It’s favoring securities due in five years and less, said Rick Rieder, chief investment officer for fundamental fixed-income portfolios for the company, which has $3.51 trillion in assets.
“One of the ways to take advantage of fixed income is to buy spread assets,” Rieder said yesterday in an interview from London. Yields on short- and medium-term Treasuries are “going to be very low for a long time.”
Corporate bonds are outperforming U.S. government securities this year as the world’s biggest economy shows signs of growth. Treasuries have returned 0.3 percent, versus 2.4 percent for company debt, according to Bank of America Merrill Lynch indexes. Government figures yesterday showing a decline in weekly U.S. jobless claims added to speculation the Labor Department’s monthly jobs report today will say employers added workers in January.
Treasuries returned 9.8 percent in 2011, versus 6.8 percent for U.S. company bonds, as surging bond yields in Europe drove demand for the relative safety of government debt.
“There may be continued opportunities in safe-haven assets such as sovereign debt” because of Europe, Jamie Stuttard, Fidelity’s London-based fixed-income portfolio manager, wrote in a report on the company’s website Feb. 1. “Later in the year, I expect to see increasingly attractive opportunities in corporate bonds throughout the world, including some parts of Europe.”
Non-financial corporate bonds are attractive compared to German bunds, British gilts and Treasuries, according to Fidelity, the Boston-based fund manager that oversees $1.52 trillion.
“We continue to see investment-grade corporate bonds as a place to look for yield,” according to the report by Rob Williams, the director of income planning, and Kathy A. Jones, a fixed-income strategist. “Reduced corporate leverage, improved profit margins and declining financial market volatility are positives.”
Volatile Financial Debt
They recommended “near-term caution” on corporate debt because of the European fiscal crisis. Bank and finance bonds will be the most volatile, according to the report.
Investors are looking for ways to increase yield as Treasury rates set record lows.
U.S. 10-year yields were little changed today at 1.83 percent as of 12:46 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security maturing in November 2021 changed hands at 101 17/32. The rate slid to 1.67 percent on Sept. 23, the lowest ever.
U.S. five-year notes yielded 0.71 percent, versus the record low of 0.6981 percent Jan. 31.
The Bank of America U.S. Corporate and High Yield Master index yielded 4.38 percent.
Increasing strength in the U.S. economy is damping demand for the safety offered by Treasuries.
Applications for unemployment insurance payments dropped by 12,000 to 367,000 in the week ended Jan. 28, the Labor Department said yesterday. U.S. employers probably added 140,000 jobs in January, following 200,000 in December, according to the median forecast in a Bloomberg News survey of economists before the figure today.
Fed policy makers said Jan. 25 that they will keep their benchmark interest rate at virtually zero until at least late 2014, and Chairman Ben S. Bernanke said he’s considering buying bonds to sustain the expansion.
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