With prices at historic highs and yields at historic lows, investors face a dilemma: Pocketing gains is tricky; reinvestment options are hard to find.
If you're hunting for what once seemed like fairly commonplace bond yields yet are still coming up empty-handed, you're in good company. Yields on a variety of bonds fell to fresh long-term lows last week, as bond income across the globe becomes increasingly inadequate.Looking for yield in low-risk sovereign bonds? The benchmark 10-year Treasury note yielded 2.60% as of Friday, per Tradeweb data, historically paltry but generous compared to many other sovereign bonds today. In Spain, one of the most troubled European economies in the past decade, the 10-year bond yield slipped below the 10-year U.S. Treasury yield last week for the first time in four years, touching a low not seen since 1789, according to Deutsche Bank data. France's 10-year yield fell to 1.65%, the lowest since 1740. The German 10-year bund yield is just under 1.4%, and the Japanese 10-year yield continues to languish at 0.61%.Junk bonds might be the best example of today's pervasive yield drought. As that market's more euphemistic "high yield" moniker indicates, it's supposed to mark the upper end of available bond yields, for those willing to shoulder the added risk of debt issued by companies with high leverage and low credit ratings. That trade-off seemed reasonable when junk bonds yielded 9%, roughly the market's long-term average. But last week the market's average yield fell below 5% for just the second time ever, yielding 4.98% late last week, according to a benchmark Bank of America Merrill Lynch index.The only other time average yield fell below 5% was for a few days in early May 2013, immediately preceding last spring's bond-market selloff. What's different this time is that underlying Treasury yields are three quarters of a percentage point higher than they were last May, meaning the compensation investors get for taking on the extra risk of buying junk bonds is three quarters of a point less than it was a year ago.That sort of enduringly low—and shrinking—risk premium is evident up and down the credit spectrum and across the borders of bond markets....MORE
