Debt Markets are Becoming More Attractive for Investors

For over a decade, investors seeking a healthy yield from bonds or short-term cash equivalents have found very little to work with. The Federal Reserve has largely held the federal funds target rate near zero since 2008. The Fed was focused on stimulating the economy with low-cost money to promote recovery from the effects of the Great Recession.

As a result, companies and the government have paid very low interest rates on the investment-grade debt they issued, compared to historic averages. However, the returns on these investments have increased significantly after the Fed aggressively raised rates to bring high inflation under control.

Even short-term corporate debt, which typically pays less than long-term debt because it’s usually considered less risky, now yields above 4% in several instances. As old debt matures, companies often need to issue new bonds in the current interest rate environment at higher rates. These new rates provide more attractive options to consider for the portion of an investment portfolio that’s not appropriate for the risk/return profile of equity exposure.

Read more on this subject here

- Anthony Winkels is Managing Partner and Wealth Advisor at Fortis Wealth Management