Is It Time to Start Buying Corporate Bonds?

One of the ways that big corporations get financing is through corporate bonds. These financial instruments are basically IOUs. You lend the company money, that it can use to cover expenses, and the company agrees to pay you back with interest. In some cases, you receive regular interest payments until the time when the principal comes due.

It used to be that corporate bonds were considered as safe as government Treasuries, but they had higher yields. Since the financial crisis and company bankruptcies, though, that view has changed. Indeed, corporate bonds can be found with much higher yields. But Treasuries are still outperforming them because the safety of providing financing for companies has been seriously called into question. (This is also why corporate bond yields have gone way up.)

But, as the economy starts to recovery, it might worth getting back in. Indeed, Good Financial Cents points this out about corporate bonds going forward:

Corporate bond fundamentals may get an additional lift from better  economic prospects for the second half. Consensus GDP forecasts for the  third quarter have revised up to the 2.0–3.0% range, up from zero, and  estimates for the forth quarter have been revised 0.5% to 1.0% higher as  well. While we would label fundamentals as still weak overall, earnings  season and prospects for economic growth are encouraging signs for  fundamentals improving going forward.

Corporate bonds are a major part of how companies keep their cash moving through the system. With a boost in corporate bonds, that could help companies, as well as give your investment portfolio a bit of a boost.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

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