Is Now The Time To Invest In Bonds?

In this episode of ETF Spotlight, I speak with JoAnne Bianco, Senior Investment Strategist at BondBloxx, about the outlook for and opportunities in the fixed income markets.

The US economy has remained remarkably resilient, but inflation has continued to run above the Fed's target for the past few years. While the Fed did not raise interest rates at its last meeting, investors dumped Treasuries, sending yields sharply higher and suggesting that the market believes the Fed may have to raise rates in the coming months.

According to BondBloxx, bond yields are now high enough to potentially outperform stocks on a risk-adjusted basis. Further, stretched stock valuations could weigh on future performance, strengthening the relative case for fixed income.

Hyperscalers like Alphabet (GOOGL - Free Report) , Amazon (AMZN - Free Report) and Meta (META - Free Report) are borrowing heavily to fund their AI buildouts. While investors were initially very excited about these bonds, that excitement seems to have faded as investors realized there is likely much more debt issuance still to come.

What impact will this massive debt issuance by the hyperscalers have on the broader bond market?

Earlier this year, cracks in the private credit market were a big concern for many experts, and there were some high-profile defaults as well. But the situation now appears relatively calm. Is the worst over?

Private credit ETFs like the BondBloxx Private Credit CLO ETF (PCMM - Free Report) typically offer higher yields than public bonds.

Fixed income ETFs have seen huge inflows this year, but investors continue to favor shorter-duration exposures. Ultra-short Treasury bill ETFs, such as the iShares 0-3 Month Treasury Bond ETF (SGOV - Free Report) and the Vanguard 0-3 Month Treasury Bill ETF (VBIL - Free Report) , have become very popular with investors.

According to JoAnne, short-to-intermediate maturities currently offer the most attractive balance. The economy also continues to support fundamentals across the high-yield spectrum, but diversification remains a critical risk management tool.