Curve Bet

摘要

Are there any morsels left for yield-starved investors? Investment-grade corporate bonds are yielding the narrowest spreads in five years: 55 basis points (that's about half a percent) between an AAA corporate and a ten-year Treasury, a five-year low. Junk spreads are also at historically low levels. So here I offer a cautious endorsement of another yield-enhancement strategy: "structured" bonds, which are complex debt securities whose interest coupons vary according to some formula that might or might not work to your advantage. Nominally, these bonds yield 7% or more, but there's a gotcha that makes these things something other than a free lunch. In short, they are appropriate for the right sort of speculator, but go in with your eyes open. One downside is a huge call risk. As with any bond that might be called away, the call provision makes the bond a lopsided bet. If rates go in your favor, the security gets called away, so you are not permitted to enjoy an outsize return for long. If rates go against you, you might be stuck with this piece of paper for a long, long time.