J.P. Morgan Asset Management says U.S. corporate bonds are attractive and Japanese investors are gobbling them up. The PIMCO Total Return Fund is doubling the amount it’s allowed to invest in junk debt.
Corporate securities are trouncing Treasuries in 2016 as investors seek higher yields than those available outside the biggest government debt markets. The greater payments on the securities will also serve as a cushion if the Federal Reserve raises interest rates. Reports due Tuesday on consumer prices, industrial production and housing starts will guide policy makers before their next meeting June 14-15.
Japanese investors are snapping up U.S. corporate bonds as central bank stimulus in the Asian nation pushed benchmark yields to less than zero, said Bob Michele, New York-based chief investment officer at J.P. Morgan Asset, which has $1.7 trillion under management. Investors outside the U.S. purchased a net $25.3 billion of company debt in the nation in March, a seven-year high, based on the most recent data.
“What we’re seeing is a ratcheting up of buying of investment-grade corporates in the U.S., and we even have some very large institutions looking at U.S. high yield,” Mr. Michele said. U.S. company debt "looks great" versus Japanese bonds and their negative yields, he said Monday on Bloomberg Television.
Here are the average yields and 2016 returns for the U.S. Treasury, investment-grade and high-yield debt markets, based on the Bloomberg World Bond Indexes: