For fixed income investors, finding the equilibrium between safety and yield is always a prime concern. But in the recent economic environment, this has become more of a priority. Once safe assets like Treasury bonds now have new hazards, while spreads in riskier junk bonds may not adequately compensate investors for their risks. It’s a delicate balance for sure.
But maybe it doesn’t have to be.
Bread & butter investment-grade corporate bonds could be the answer. Investors continued to overlook IG corporates as they focused on more exotic fare to get their yield fix. But treasuries now facing some new fiscal risk, investment-grade corporate bonds could be the asset class to get safety and strong yields. With plenty of tailwinds,
Risk Vs. Reward
Uneasiness. Volatility. Risk. Those three words could sum up the economic and geopolitical environment today. There is a lot of uncertainty facing fixed-income and equity investors.
The on-again/off-again tariff situation has created a lot of uneasiness within the equity markets. Companies are having trouble planning and have offered mixed or reduced guidance about forward plans. We’ve seen decreases in businesses pending. Consumers have started to cut back. All while inflationary woes don’t seem to be ending anytime soon.
With that in mind, many equity investors have started to pull back on risk. But the safety of treasury bonds- at least longer-term bonds- isn’t exactly risk-free anymore.
Tax changes in the One Big Beautiful Bill Act (OBBBA) and spending plans are expected to cause the budget deficit to rise even further above current levels. Projections from the Congressional Budget Office (CBO) now show that the deficit is likely to increase by $3.4 trillion over the next decade. That has many bond investors questioning the safety and appeal of U.S. treasuries, demanding higher yields to overcome potential risks. The ICE BofAML MOVE Index- which is like the VIX for bonds- has been elevated and quite bouncy in response.
For investors, this has created plenty of questions about how to position their portfolios. How can they get quality returns while still maintaining a level of safety?
Let’s Hear It For Old-school Corporate Bonds
The answer to this question and just how to position our portfolios could be an often-ignored, yet standard asset class. We’re talking about bread & butter investment-grade corporate bonds. Bonds issued by firms like Microsoft or Procter & Gamble offer what investors are looking for.
For starters, we can consider their yields.
Today, the Bloomberg US Corporate Bond Index has an average yield still near the high end of its historic 15-year range. The average yield-to-worst of the index has hovered between 4.75% and 6.5% since late 2022. To put that into perspective, in the years following the global financial crisis, the average yield of the index rarely exceeded 4%. Corporate bonds are now producing some serious and consistent income. Right now, you can snag IG corporate bonds at over 5%, well exceeding the yields on Treasuries across the maturity spectrum. 1
This chart from Charles Schwab highlights just how high IG corporate bond yields are.
Source: Charles Schwab
The beauty is that high yield comes with increasingly strong credit quality.
According to asset manager BNP Paribas, investment-grade corporate bond issuers have continued to improve their standing. This has included building cash cushions and creating a more disciplined approach to capital allocation. Secondly, issuance of new debt has been low since the Fed’s rate hikes back in 2022. This stable level of debt is a net positive for corporate bonds and puts far less pressure on servicing those bonds already outstanding. Also helping relieve the pressure has been a slower pace of shareholder rewards. While dividend growth is still there, the pace of those increases has declined slightly. This means there’s more cash available to pay off debt.
All of this has helped credit quality. Last year, upgrades of investment-grade corporate bonds surpassed downgrades by $496 billion. So far this year, upgrades have more than doubled in the variety of sectors, such as utilities, financial institutions, high technology, and homebuilders/real estate sectors, leading those upgrades per S&P Global. The number of IG bonds slipping into junk status has been lower than historic measures. 2
Investors have started to take notice of corporate bonds’ potential. Credit spreads are now at some of the lowest points since 1998. Driven by de-risking, investors have begun to sell equities and buy bonds. Since the start of 2025, so-called allocated capital – or money that represents a fundamental shift in allocations, not just timing – has gone towards bonds. More than $10 billion has flown out of U.S. equity funds and ETFs, while about $180 billion has flown into taxable bond funds and ETFs. Remember, supplies of new bonds have been tight. This has helped create capital appreciation as well.
IG Corporate Bonds Make Sense
Given the still strong yields, potential for more spread compression, and overall credit quality of the sector, investment-grade corporate bonds have a lot to offer portfolios. Investors have a chance to derisk equity allocations and still score stock-like returns, but eliminate some of the volatility and fiscal issues facing treasuries. To that end, buying IG bonds makes a ton of sense.
And there are plenty of ways to do just that.
Getting your hands on investment-grade corporate bonds is easy. Any good brokerage account can assist in trading and buying them. Bonds from many blue chips have a robust secondary market with low bid-ask spreads. A bond from Johnson & Johnson is as easy to buy as a 10-year treasury bond.
But it does take some hefty minimums to purchase corporate bonds at many brokerages, and you do expose yourself to single issuer risk. But luckily, the modern eTF market has made purchasing corporate bonds a simple exercise. There are numerous passive and active funds in the sector.
Investment-Grade Corporate Bond ETFs
These funds were selected based on their exposure to investment-grade bonds at a low cost. They are sorted by their YTD total return, which ranges from 4.3% to 6.3%. They have expenses of 0.03% to 0.55% and yields from 4.4% to 6.7%. They have assets under management between $520M and $31B.
| Ticker | Name | AUM | YTD Total Ret (%) | Yield (%) | Exp Ratio | Security Type | Actively Managed? |
|---|---|---|---|---|---|---|---|
| IGIB | iShares 5-10 Year Investment Grade Corporate Bond ETF | $15.3B | 6.3% | 4.7% | 0.04% | ETF | No |
| SCHI | Schwab 5-10 Year Corporate Bond ETF | $8.9B | 6.2% | 5.4% | 0.03% | ETF | No |
| CORP | PIMCO Investment Grade Corporate Bond Index ETF | $1.33B | 5.4% | 4.8% | 0.36% | ETF | Yes |
| KORP | American Century Diversified Corporate Bond ETF | $529M | 5.2% | 5.4% | 0.29% | ETF | Yes |
| LQD | iShares iBoxx $ Investment Grade Corporate Bond ETF | $30.4B | 5.2% | 4.9% | 0.14% | ETF | No |
| SPBO | SPDR Portfolio Corporate Bond ETF | $1.6B | 5% | 5.1% | 0.03% | ETF | No |
| USIG | iShares Broad USD Investment Grade Corporate Bond ETF | $14B | 5% | 4.7% | 0.04% | ETF | No |
| IGSB | iShares 1-5 Year Investment Grade Corporate Bond ETF | $21.7B | 4.5% | 4.4% | 0.04% | ETF | No |
| VCLT | Vanguard Long-Term Corporate Bond ETF | $10.8B | 4.5% | 6.7% | 0.03% | ETF | No |
| FSIG | First Trust Limited Duration Investment Grade Corporate ETF | $1.3B | 4.3% | 4.5% | 0.55% | ETF | Yes |
For investors, seeking safety and a good return is a tough nut to crack these days. There are risks all around. But many of those risks can be removed by focusing on investment-grade corporate bonds. With high yields, strong credit quality, and several capital appreciation tailwinds propelling the sector, they could offer the best of both worlds for portfolios. Adding IG corporates is a no-brainer.
Bottom Line
Investment-grade corporate bonds could be a top portfolio play in these risky times. Offering safety and yield, they could cushion a portfolio and generate returns for investors.
1 Charles Schwab (July 2025). Corporate Bonds: Mid-Year 2025 Outlook
2 S&P Global (April 2025). Investment-Grade Credit Check Q2 2025
