'Best Bang For Your Buck': Expert Sees Strongest Value In 1–5 Year Credit Curve
Fixed income investors are finally seeing some relief after enduring the longest yield curve inversion in modern history.
Yield Curve Steepening: A Shift After Years Of Inversion
Since July 2022, short-term yields sat stubbornly above long-term yields, creating a highly unusual environment. But as of December 2024, the yield curve has returned to positive territory, though it remains far from its historical norm.
The 2-year/10-year spread now sits at just +0.33%, well below the 1% average.
Where The Best Value Lies In Corporate Bonds
According to Lawrence Gillum, Chief Fixed Income Strategist at LPL Financial, the Treasury curve may continue to steepen as:
- economic data beats expectations,
- inflation remains sticky
- Treasury issuance ramps up to cover widening budget deficits.
However, despite this shift, Gillum believes the best “bang for your buck” still lies in the 1–5-year segment of the corporate credit curve, with the 5–7-year range also offering incremental value.
ETFs To Capitalize On The Opportunity
For investors looking to position themselves accordingly, ETFs like the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE:LQD) and the SPDR Portfolio Corporate Bond ETF (NYSE:SPBO) provide broad exposure to investment-grade corporate credit. Meanwhile, those wanting to stay on the shorter end can consider the Vanguard Short-Term Corporate Bond ETF (NASDAQ:VCSH) or the iShares 1-5 Year Investment Grade Corporate Bond ETF (NASDAQ:IGSB), both of which align with Gillum's recommended maturity range.
The takeaway? While longer-term yields are climbing, short- to intermediate-term corporate bonds currently present a compelling risk-reward tradeoff. Some investors are looking to lock in yields while the opportunity remains.
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