How To Take Advantage Of Today’s Generous Corporate Bond Yields

The Federal Reserve imparted new meaning to quantitative easing and low interest rates both during and after the pandemic. Since then, we investors have been lost in the desert of no yield.

Three full years later bond yields are once again attractive. Will interest rates rise again? Probably. But since it’s nearly impossible to lock in bond yields at the peak, now is the time to put on your buying hat.

Inverted yield curves usually don’t last for long. The generic two-year Treasury Note peaked at a 4.725% yield. Since then, we’ve had a hot PPI (Producer Price Index). Core CPI (which strips out food and energy) rose 0.2% month over month. That’s only a smidge less than forecast. Bond market investors have been ever so hopeful the Fed will decelerate its interest rate increases.

Yet Chairman Powell said the Fed is not close to ending its anti-inflation campaign. The Fed bases its interest rate decisions on data. And that data says (to Powell, anyway) keep raising rates.

What to do?

Let’s say you have $250,000 (or some other amount), do this: On days when the bond market is down—that is yields are up, prices are down—use 5% of that money to purchase corporate bonds. Your interest rate risk is mitigated since the 10-year Treasury peaked in late October. Further, the pandemic low in the 10-year Treasury was 0.508% vs. 3.47% now. We’ve come a long way.

Don’t let today’s high yields go to waste. Make a measured, methodical move. Today’s juicy yields will evaporate by the time the economists announce we are in a recession.

My recommendations

These maturities are not long term and provide good yields in several industries:

· Kinder MorganKMI
, 4.25% due 9-1-23, 5.10% yield

· BiogenBIIB
, 4.05% due 9-15-25, 4.99% yield

· HCA Healthcare, 4.50% due 2-15-27, 5.20% yield

· T-Mobile, 4.75% due 2-1-28, 5.00% yield

· Freeport-McMoRanFCX
, 4.375% due 8-1-28, 5.47% yield

· Occidental PetroleumOXY
, 6.375% due 9-1-28, 5.70% yield

· Targa ResourcesTRGP
, 6.875% due 1-15-29, 5.70%

Yields as of December 16, 2022.

The Federal Reserve is clear: it’s not over until they say it’s over. By then these generous yields will be gone. Act now.