Financial Professionals

Market Insights

A A A

Corporate Bonds Still In Play

07/08/2010

Corporate Bonds - 6 reasons that an investment in Corporate Bonds is still warranted.

1.  Easy monetary policy

Fed Funds Rate 1988-2010


Source: Bloomberg 

2.  Low Treasury yields

10 Year Treasury 9/30/80-6/30/10

Source: Bloomberg
 
3.  Weakening inflationary expectations

Consumer Price Index YoY 9/30/80-6/30/10

Source: Bloomberg 

4.  Global growth outlook that is softening but still positive

US GDP 9/30/80-3/31/10

Source: Bloomberg
 
5.Strong corporate balance sheets

A Standard & Poor's analysis of large-cap companies found that they had a record amount of cash and equivalents at the end of 2009. Excluding financial, transportation, and utility companies (which hold lots of cash to operate), S&P 500 companies had $831.2 billion in their coffers, 36.3% more than when the recession officially began at the end of 2007.

Current Bloomberg data shows that the entire S&P 500 Index has $1.28 trillion on hand, more than twice the $596.5 billion on hand in 2003 after the end of the last recession.

According to Bloomberg, the companies in the S&P 500 generated free cash flow over the past 12 months of $883.4 billion, 119% more than in 2006.

6.  Strong corporate profits

Source: Bloomberg

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.