Why Do Corporate Bonds Look Attractive Now?

High starting yields and resilient corporate fundamentals make corporate bonds attractive despite historically tight credit spreads.

• The average yield to worst on the Bloomberg U.S. Intermediate Corporate Bond Index is near 5.75%, close to the high end of its 15-year range, while Schwab favors short- and intermediate-term maturities.
• Schwab’s historical analysis of weekly data from 1996 to 2026, excluding the July 2007–June 2009 global financial crisis, found that starting yields of at least 5.5% were followed by higher average returns, narrower return ranges, and less severe worst outcomes over six months, one year, and two years.
• High-yield bonds offer roughly 8% yields, with an average duration of 3.2 years; Ba1-rated issues represent 55% of the index, while Caa-rated and lower issues account for 11%.
• Credit spreads remain low: investment-grade spreads were 0.8% on October 7 versus a 25-year average of 1.43%, and high-yield spreads were 3.05% versus 4.9%; Caa spreads nevertheless rose by more than 400 basis points during the year.
• Pretax corporate profits increased 8.9% quarter over quarter in the second quarter, while non-financial companies held about 95 cents of liquid assets for every dollar of short-term obligations; preferred securities also offered average yields near 7% or higher but carry greater duration and subordination risks.

Takeaway: Investors can consider investment-grade bonds, selected high-yield bonds, and preferred securities for income, but should favor short and intermediate maturities, take credit risk moderately, and recognize that tight spreads leave limited protection if growth weakens or Treasury yields rise further.