What corporate bond returns should investors expect?

Many bond investors believe a bond's yield is the only return you can achieve.  Further, many media outlets such as CNBC often say "with the 10-year Treasury yielding 3%, why would you ever invest in bonds?," implying the only bonds one can buy are Treasurys.  Payment of a fixed coupon is one of the many advantages of owning corporate bonds; however, we focus just as much on buying bonds that can increase in value and achieve a strong total return.  Our goal is to recommend corporate bonds that, over a two- to four-year period, can achieve annualized rates of return of 7-9% for investment-grade corporate bonds and 10-15% for high-yield corporate bonds.

With strong capital appreciation, after-tax returns from corporate bonds can often exceed investment returns from municipal bonds given the more favorable tax treatment of capital gains compared to interest income.

When evaluating investment performance, investors should be wary of the prices they see on their brokerage statements, which do not show the bond's total return and often undervalue the bond held.  The price shown on an investor's statement is called "an evaluated price," which is an estimated price at which a large institutional money manager could sell the bond.  Investors owning smaller quantities can often achieve better price execution than investors needing to sell $1 million plus of bonds, so always check a bond's depth of book to see what the current market price of the bond is.