The 2020 stock bubble has yet another hole to patch… widening credit spreads. In particular, the spread between investment grade bonds via LQD and junk bonds via HYG are expanding.
High yield credit (HYG) outperformed investment grade (LQD) up until the 3rd quarter of 2018. As the U.S. economy began showing definitive signs of wear-n-tear, however, investment grade bonds became the more sensible option.
Ironically, 50% of the bonds in iShares IBoxx Investment Grade Corporate Bond Fund (LQD) are “Triple B.” Those are bonds on the fringe of “junk” status.
It follows that comparable Treasury bonds via IEF have provided lower risk for higher reward than LQD or HYG. That’s not going to make members of the Federal Reserve Open Market Committee (FOMC) too happy.