Junk bonds continue to outperform stocks on the year as the asset classes compete for investors’ increasing appetite for risk. The SPDR Barclays Capital High Yield Bond ETF (JNK) is up nearly 22% this year compared to only 7% for the SPDR S&P 500 (SPY).
As bond investors begin to experience never before seen risks, they are asking themselves if debt is the new equity. Case in point – the investors who own the secured debt of Chrysler.
Monday’s annoucement that Cisco successfully raised $4 billion at low interest rates is another sign that the credit markets are beginning to unfreeze.
According to a report by State Street, US ETF assets grew by $4.7 billion or 0.8% in August to a total of $582 billion as rising US equity and bond prices offset declines in commodity prices and International stocks.
Income investors looking to generate cash flow with ETFs can choose from fixed income, dividend and international funds.
Ed and Mary are retired and depend on their portfolio to yield around 5% to supplement their retirement income. They want to maximize their investment income while not putting their nest egg at too much risk.
To preserve wealth and generate some income, Jim moved a healthy portion of his portfolio to Long Term Treasury Bonds. However, the improving economy combined with the Fed’s massive monetary response to the financial crisis has Jim concerned about the potential for a rising interest rate environment within the next 12 to 18 months.