What are the Best Bond Investments Today?

Bonds are an important asset class for investors looking for steady income and portfolio diversification. They provide fixed interest payments to investors and are generally considered to be less risky than stocks. With the current economic conditions, a few bond investments could be considered attractive options for investors.

1. Treasury Bonds – Treasury bonds are issued by the United States government and are considered one of the safest investments available. They are backed by the full faith and credit of the US government and are guaranteed to be repaid. Yields on two-year Treasuries are the highest they’ve been since 2007. The yield on 10-year Treasury bonds has remained low but steadily increased over the last 30 days. The yield curve is as deeply inverted as its been in 40 years, with 2 yr yields at 4.8%, 10 yr yields at 3.9% and 30-year Treasury bonds at 3.9%.  Yields vary daily, and these are as of February 21st.  Treasuries can be bought direct from the Government, banks, investment brokers such as Fidelity, or dealers. When you buy through Treasury Direct, you must hold new investments for at least 45 calendar days.
2. Corporate Bonds – Companies issue corporate bonds to finance their operations. They offer higher yields than Treasury bonds but also carry more risk. Investors can choose from investment-grade corporate bonds, which companies issue with strong credit ratings, or high-yield corporate bonds, which are issued by companies with weaker credit ratings but offer higher yields. IGSB is a popular 1- 5 year short-term investment grade ETF
3. Municipal Bonds – State and local governments issue municipal bonds to finance public projects like schools, highways, and hospitals. They offer tax advantages to investors because the interest income is exempt from federal income taxes. They are also generally exempt from state income taxes if the issuer is from the investors’ home state.  Municipal bonds can be a good option for investors in higher tax brackets. Typically they are sold in lots of $25000 or more.  A Triple AAA General Obligation Insured Muni bond is considered a risk-free investment by sophisticated market participants and may have higher after-tax returns than comparable rated corporate or Federal government bonds.
4. Emerging Market Bonds – Emerging market bonds are issued by countries that are considered to be developing economies. They offer higher yields than developed market bonds but carry more risk. Investing in emerging market bonds requires a thorough understanding of the economic and political conditions of the countries issuing the bonds.

In conclusion, today’s best bond investments depend on the individual investor’s financial goals and risk tolerance.  One fine point that investors often overlook is that although bonds are obligations from the issuers to return an investor’s money back plus a given rate of interest, that pledge is absent in a pooled investment such as an ETF or fund.  The promise of the return of principal only exists at the maturity of the obligation. You are sacrificing that promise when you buy bonds in an ETF or fund.  The promise still exists, but the ETF or fund may no longer own the bonds that you initially purchased unless it is a closed-end fund. Bonds fluctuate with interest rate and perceived credit risk.   That’s why sophisticated investors often want to own the bonds directly and not as part of any pooled investment vehicle. As with any investment, it is important to do thorough research and consult with a financial advisor before making any decisions.

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