The Best Bonds For Record Low Interest Rates

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Bonds have been badly hit in the wake of the Federal Reserve printing trillions of dollars to calm the markets and revitalize economic growth. The central bank cutting interest rates to near-zero has seen investors shun bonds given the reduced rate of return. However, that does not mean it is all doom and gloom in the bond market. There are a number of bonds for riding the suppressed bond markets to generate significant passive income on the side as it stands.

U.S Treasuries 0.5% Yield

With interest rates at record lows of 0.25%, U.S Treasuries might as well be a better option for investors looking to play it safe in the bond markets. The promise of a 0.5% return should excite anyone with a considerable sum of money looking to generate some passive income on the side.

A ten year Treasury pegged at 0.5% could guarantee a return of as much $5,000 on investing $1 million. The guarantee of return on investing in the United States government should work for any investor looking for safe investments, given the turmoil in the global markets.

Municipal Bonds 8.4% Yield

Municipal bonds also fit the bill as an ideal investment tool amidst the contraction in the bond market. Known for low default rates, municipal bonds also guarantee a higher rate of return as compared to other bonds struggling amid low-interest rates. Apart from treasuries, municipal bonds are the safest bonds to buy, given the bond market’s uncertainty.

The best way to invest in Municipal bonds is through closed-end funds such as the Niveen AMT-Free Muni Credit Fund NVG. The fund boasts of a yield of as much as 5%. Likewise, municipal bonds ETF such as iShares National Muni Bond ETF also boast of good Yield of 1.2%.

Corporate Bonds 5% Yield

The Federal Reserve reiterating plans to buy corporate and junk bonds have once again affirmed their investment thesis. Corporate bonds offered by stable corporations are ideal given the guarantee for higher returns in the market.

Likewise, investing in corporate bond ETF would be the best way to gain exposure to corporate bonds that the Federal Reserve has committed to protecting. The iShares High Yield Corporate Bond ETF pays as much as 4.9%.

Preferred Yields

Money manager’s love preferred Yields, given the priority, they come with when it comes to paying dividends. Corporations leverage them to raise funds instead of using common stock. Likewise, preferred yields come with much higher yields than common stock, thus ideal in this zero-interest environment.

Floater Bonds

Floater Bonds are ideal in environments where interest rates are poised to tick higher. These bond investments allow investors to enjoy higher yields as the overall benchmark increases. The problem of investing in floater bonds now is that interest rates look set to remain near the zero level much longer.

The most popular ETF in the space include the iShares Floating Rate Bond ETF that pays 0.8%. The fund has delivered more than 13% over the past nine years.


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