'Best Bang For Your Buck': Expert Sees Strongest Value In 1–5 Year Credit Curve

Zinger Key Points

Yield curve steepening presents new opportunities, but the 1–5-year corporate credit range remains the most attractive.
Investors can capitalize on the shift with ETFs like LQD, SPBO, VCSH, and IGSB.
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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 LQD and the SPDR Portfolio Corporate Bond ETF 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 VCSH or the iShares 1-5 Year Investment Grade Corporate Bond ETF 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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