Increasing Yield with US Corporate Bonds

For 2021, with interest rates very low and spreads tight, investors are wondering where to turn in order to generate returns in the liquid fixed income universe. We will show that US credit investments offer attractive returns even after currency hedging. Due to a steep US yield curve, the expected return is higher than the current yield. 

Average returns for safe-haven securities such as government and covered bonds are negative, whereas euro-denominated investment grade (IG) corporate bonds generate yields of less than 0.5%. In this environment, US dollar-denominated corporate bonds are an exception, offering yields of 2.2% – and a current yield of 1.35% includ- ing FX hedging. These numbers have increased recently after the considerable interest rate movements in the US in Q1/2021 when the 10-year rate moved sharply higher from a level of 0.91% at the turn of the year to above 1.6% in mid-March.

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