In what kind of bonds should you invest the fixed income portion of your portfolio if you thought that a huge economic downturn was just around the corner—U.S. Treasurys or High-Grade Corporate Bonds?
One of the fascinating insights he got from his research was the surprisingly strong relative performance of high-grade corporate bonds during the Great Depression and the Great Financial Crisis. “I found that a corporate [bond] portfolio launched in January 1929, or in January 2008, outperformed a portfolio of long Treasury bonds if held until after the crisis passed,” McQuarrie told me in an email.
By the way, McQuarrie’s data takes into account the losses corporate bonds suffered because of ratings downgrades and other adverse developments. In fact, his data series shows corporate bonds produced a lower return in some years during the 1930s than previously reported by sources such as the famous Stock, Bonds, Bills and Inflation yearbook made famous by Ibbotson .
Corporate bonds’ higher yields are not entirely a free lunch, since they are likely to suffer more than Treasurys in the early phases of any future economic downturn. This happened during both the Great Depression and the Great Financial Crisis. But, assuming the future is like the past, corporate bonds will in a couple of years recover enough to overcome their initial losses.
Safe & secure are the Treasury Bonds investment. Retiree fear the worst & its justified . The business gold proves it.
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investing a small portion of cash in short-term government bonds. I
. T-bonds are indeed safe and dependable investments. Unlike equities, these instruments pay a steady rate of interest throughout the term of the bond.
With current treasury yields retiring on T bonds means Top Ramen for dinner only on nights one could actually affords to eat.
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