We Update Our 65 Bond Picks:

Bondsavvy's Corporate Bond Returns

Bondsavvy vs. iShares Bond ETF Performance

All Exited
Recommendations
Through Nov 29,
2024

  Bondsavvy Wins
  iShares Bond ETF Wins

# Bondsavvy Wins

50 (76%)
66 Exited Bond Picks
16 (24%)

# Bondsavvy Wins > 10 Percentage Pts

22
3

Our corporate bond returns have been beating the world’s largest bond funds and ETFs:

What our numbers tell you

  • Our corporate bond recommendations seek to maximize income and total returns
  • We've exited 66 of our prior 133 bond recommendations and have beaten the leading iShares corporate bond ETFs 76% of the time
  • In 22 of our 66 exited recommendations, we have beaten the iShares corporate bond ETFs by at least 10 points
  • In only 3 of 66 exited recommendations, iShares outperformed Bondsavvy by at least 10 points

Bondsavvy’s Corporate Bond Returns Explained:

Bondsavvy provides corporate bond recommendations subscribers use to make investment decisions for their own accounts. Our investment newsletter subscribers are either individual investors or financial advisors acting on behalf of individual investors.

This page compares the corporate bond returns achieved by Bondsavvy’s recommendations to those of the iShares LQD and HYG bond ETFs:

Performance of Sold Investment Recommendations
For our exited recommendations

We show the name of the recommended bond; its CUSIP; pick and sell dates; and the return vs. the benchmark iShares bond ETF

Performance of Current Investment Recommendations
For our current recommendations

Those still rated buy or hold – we show the pick date; pick date price; current price; and the return our recommendation has achieved vs. the benchmark iShares bond ETF

Bond investing education
Below our returns tables

We show a case study on Verizon bonds and Albertsons bonds, which explains the key drivers of these recommendations’ performance

Our Corporate Bond Returns vs. iShares Bond ETFs

Corporate Bond Returns of Exited Recommendations

Recommended Corporate Bonds
Bondsavvy Investment Returns
Bond ETF Returns (6)
Pick Date
Sell Date
Total Return (3)
%
10-bond $
Return
iShares
LQD / SLQD
iShares
HYG / SHYG
Beat Benchmark
iShares
Bond ETF

Investment-Grade Corporate Bonds

Alphabet 1.998% 8/15/26 CUSIP 02079KAC1
3/8/18
4/1/19
5.66%
$525.94
5.58%
NA
Apple 3.45% 2/9/45 CUSIP 037833BA7
12/13/17
8/9/19
13.10%
$1,262.20
10.53%
NA
Bed Bath & Beyond 3.749% 8/1/24 CUSIP 075896AA8
5/2/18
10/7/19
20.73%
$1,779.69
17.34%
NA
BNSF 3.90% 8/1/46 CUSIP 12189LAZ4
3/15/19
10/7/19
17.18%
$1,674.41
11.62%
NA
Brunswick Corp. 4.40% 9/15/32 CUSIP 117043AU3
6/22/23
9/5/24
14.68%
$1,266.62
10.58%
NA
CSX 3.80% 11/1/46 CUSIP 126408HF3
3/26/20
11/24/20
24.96%
$2,464.39
19.71%
NA
CSX Corp. 3.25% 6/1/27 CUSIP 126408HH9
3/26/20
8/12/20
12.60%
$1,281.77
18.78%
NA
--
eBay 4.00% 7/15/42 CUSIP 278642AF0
12/13/17
12/4/21
42.16%
$3,890.14
25.21%
NA
eBay 4.00% 7/15/42 CUSIP 278642AF0
11/19/18
12/4/21
66.80%
$5,103.44
31.24%
NA
E*TRADE 3.80% 8/24/27 CUSIP 269246BQ6
3/26/20
9/10/20
22.35%
$2,072.42
17.39%
NA
Expedia 3.800% 2/15/28 CUSIP 30212PAP0
3/25/20
6/19/20
31.55%
$2,369.53
18.42%
NA
FedEx 3.400% 2/15/28 CUSIP 31428XBP0
3/30/20
9/10/20
13.50%
$1,344.64
12.16%
NA
HP Inc. 6.000% 9/15/41 CUSIP 428236BR3
12/13/17
1/23/20
19.22%
$2,063.90
15.43%
NA
Kirby Corp. 4.20% 3/1/28 CUSIP 497266AC0
6/5/20
3/25/21
16.12%
$1,559.15
2.05%
NA
Kyndryl Holdings 3.15% 10/15/31 CUSIP 50155QAL4
6/22/23
9/5/24
20.81%
$1,569.09
10.58%
NA
Lazard Group LLC 3.625% 3/1/27 CUSIP 52107QAH8
8/14/18
8/9/19
11.81%
$1,122.53
13.39%
NA
--
Macy's Retail Hldgs 4.50% 12/15/34 CUSIP 55616XAM9
12/12/18
5/30/24
37.28%
$2,981.05
12.86%
NA
Marriott Int'l 3.125% 6/15/26 CUSIP 571903AS2
12/12/18
5/21/19
8.89%
$807.99
7.60%
NA
Marriott Int'l 4.00% 4/15/28 CUSIP 571903AY9
11/16/22
9/5/24
13.61%
$1,267.99
11.23%
NA
Nutrien Ltd. 4.00% 12/15/26 CUSIP 67077MAE8
6/16/22
5/30/24
5.66%
$558.87
7.60%
NA
--
PepsiCo 3.00% 10/15/27 CUSIP 713448DY1
3/26/20
6/19/20
8.02%
$833.86
15.46%
NA
--
RPM Int'l 4.550% 3/1/29 CUSIP 749685AX1
6/5/20
3/25/21
5.41%
$605.45
2.05%
NA
Southwest Airlines 3.00% 11/15/26 CUSIP 844741BC1
3/26/20
11/24/20
15.29%
$1,399.69
19.71%
NA
--
Southwest Airlines 2.625% 2/10/30 CUSIP 844741BF4
3/26/20
11/24/20
19.05%
$1,618.34
19.71%
NA
--
Teck Resources 6.25% 7/15/41 CUSIP 878742AW5
9/5/19
9/10/20
4.18%
$475.83
8.28%
NA
--
Tiffany 4.900% 10/1/44 CUSIP 886546AD2
9/5/19
1/23/20
26.08%
$2,686.95
2.03%
NA
Verizon 3.85% 11/1/42 CUSIP 92343VBG8
9/26/17
9/9/19
27.01%
$2,423.27
12.53%
NA

High-Yield Corporate Bonds

AECOM 5.125% 3/15/27 CUSIP 00774CAB3
3/8/18
6/3/21
30.44%
$2,965.06
NA
19.84%
Albertsons 7.45% 8/1/2029 CUSIP 013104AF1
9/26/17
3/24/22
79.52%
$6,242.68
NA
15.18%
AMC Networks 4.750% 8/1/25 CUSIP 00164VAE3
8/14/18
2/19/21
18.88%
$1,818.26
NA
16.21%
AMC Networks 4.750% 8/1/25 CUSIP 00164VAE3
3/25/20
2/19/21
18.68%
$1,680.75
NA
28.06%
--
American Axle 6.500% 4/1/27 CUSIP 02406PAU4
11/19/18
9/10/20
23.96%
$2,169.92
NA
11.74%
American Axle 6.500% 4/1/27 CUSIP 02406PAU4
8/14/18
9/10/20
14.45%
$1,448.66
NA
9.79%
Beazer Homes 7.25% 10/15/29 CUSIP 07556QBT1
3/8/23
9/5/24
23.23%
$2,127.51
NA
17.05%
CF Industries 4.95% 6/1/43 CUSIP 12527GAD5
5/31/19
11/24/20
49.55%
$4,291.40
NA
8.79%
Citrix Systems 4.50% 12/1/27 CUSIP 177376AE0
11/19/18
1/23/20
20.45%
$1,939.14
NA
12.62%
Citrix Systems 4.50% 12/1/27 CUSIP 177376AE0
5/31/18
1/23/20
18.63%
$1,827.19
NA
12.71%
Consolidated Comms 6.5% 10/1/22 CUSIP 20903XAE3
8/14/18
10/2/20
22.11%
$2,062.04
NA
8.60%
CoreCivic 4.75% 10/15/27 CUSIP 21871NAA9
12/11/19
9/5/24
40.52%
$3,371.37
NA
16.29%
DISH DBS 7.750% 7/1/26 CUSIP 25470XAY1
5/31/18
5/28/19
12.82%
$1,108.63
NA
6.04%
DISH DBS 5.125% 6/1/2029 CUSIP 25470XBD6
1/12/22
10/7/24
-12.21%
-$1,131
NA
7.43%
--
EQT Corp. 3.900% 10/1/27 CUSIP 26884LAF6
9/23/20
6/3/21
19.52%
$1,790.33
NA
7.68%
Expedia 3.800% 2/15/28 CUSIP 30212PAP0
3/8/18
6/19/20
13.85%
$1,296.27
NA
8.82%
Exterran Energy 8.125% 5/1/25 CUSIP 30227KAE9
1/12/22
10/21/22
14.36%
$1,359.74
NA
-13.51%
H&E Equipment 5.625% 9/1/25 CUSIP 404030AH1
3/15/19
11/24/20
13.06%
$1,305.48
NA
9.76%
JCPenney 5.65% 6/1/20 CUSIP 708130AD1
4/4/20
12/17/20
-100.00%
($5,476.94)
NA
21.13%
--
JCPenney 6.375% 10/15/36 CUSIP 708130AC3
12/13/17
12/17/20
-80.77%
($4,173.71)
NA
16.96%
--
JCPenney 5.65% 6/1/20 CUSIP 708130AD1
11/19/18
5/28/19
7.25%
$595.11
NA
6.07%
JCPenney 5.65% 6/1/20 CUSIP 708130AD1
9/10/18
5/28/19
-3.96%
($367.53)
NA
3.80%
--
Lennar 4.750% 5/30/25 CUSIP 526057BV5
3/8/18
11/24/20
27.18%
$2,700.06
NA
15.67%
Mercer International 5.125% 2/1/29 CUSIP 588056BB6
3/8/23
7/13/23
-0.73%
($60.68)
NA
4.00%
--
Mercer International 5.50% 1/15/26 CUSIP 588056AW1
9/5/19
5/18/20
-9.42%
($933.25)
NA
-5.18%
--
M/I Homes 5.625% 8/1/25 CUSIP 55305BAQ4
3/15/19
1/11/21
18.20%
$1,746.45
NA
11.66%
Monitronics 9.125% 4/1/20 CUSIP 609453AG0
9/26/17
9/14/18
-7.13%
($642.57)
NA
2.59%
--
Park-Ohio Industries 6.625% 4/15/27 CUSIP 700677AR8
5/31/19
3/25/21
14.25%
$1,416.71
NA
12.31%
Pitney Bowes 4.625% 3/15/24 CUSIP 724479AJ9
5/31/18
5/15/19
10.66%
$912.23
NA
5.90%
Quad / Graphics 7.000% 5/1/22 CUSIP 747301AC3
12/12/19
4/29/22
26.03%
$2,410.41
NA
0.59%
Steelcase 5.125% 1/18/29 CUSIP 858155AE4
11/16/22
9/5/24
23.50%
$2,039.31
NA
19.07%
Tennant Company 5.625% 5/1/25 CUSIP 880345AB9
12/12/18
11/24/20
17.99%
$1,753.04
NA
14.72%
TransAlta 4.500% 11/15/22 CUSIP 89346DAF4
6/5/20
3/25/21
5.42%
$550.23
NA
9.25%
--
TransAlta 6.50% 3/15/40 CUSIP 89346DAE7
6/5/20
3/7/24
27.15%
$2,628.51
NA
12.37%
Tupperware Brands 4.75% 6/1/21 CUSIP 899896AC8
12/12/19
12/3/20
7.30%
$725.29
NA
4.40%
US Cellular 6.700% 12/15/33 CUSIP 911684AD0
3/8/23
5/30/24
26.17%
$2,331.19
NA
11.19%
US Concrete 6.375% 6/1/24 CUSIP 90333LAP7
12/12/18
3/25/21
21.45%
$2,056.64
NA
18.43%
Vital Energy 9.500% 1/15/25 CUSIP 516806AF3
12/18/20
3/24/22
31.71%
$2,785.86
NA
-0.93%
Vital Energy 10.125% 1/15/28 CUSIP 516806AG1
12/17/20
3/29/24
66.49%
$5,525.02
NA
5.68%

Corporate Bond Returns of Current Recommendations

Recommendations by Pick Date Subscribe to learn bond names and CUSIPs
Bondsavvy Investment Returns
Bond ETF Returns (6)
Pick Date
Offer Price (1)
Nov 29, 2024
Bid Price (2)
Total
Return (3)
iShares
LQD / SLQD
iShares
HYG / SHYG
Beat Benchmark
iShares
Bond ETF
Nov 14, 2024
Investment Grade Bond 1
88.83
90.68
2.30%
2.13%
High Yield Bond 1
89.10
89.35
0.57%
0.51%
Investment Grade Bond 2
104.74
106.01
1.44%
2.13%
--
Investment Grade Bond 3
97.00
98.44
1.69%
2.13%
--
Jul 11, 2024
Investment Grade Bond 1
80.76
82.84
4.67%
3.18%
Investment Grade Bond 2
73.05
75.53
5.56%
3.18%
High Yield Bond 1
102.84
103.17
2.90%
4.40%
--
High Yield Bond 2
103.61
105.47
4.22%
4.84%
--
Apr 04, 2024
Investment Grade Bond 1
102.64
106.04
7.37%
5.33%
High Yield Bond 1
98.33
101.52
6.84%
7.40%
--
Investment Grade Bond 2
104.40
106.47
5.93%
5.33%
High Yield Bond 2
104.03
106.41
6.61%
7.40%
--
Jan 11, 2024
High Yield Bond 1
99.84
100.52
5.73%
8.72%
--
High Yield Bond 2
97.33
98.94
7.11%
8.72%
--
Investment Grade Bond 1
98.43
99.18
5.39%
4.20%
High Yield Bond 3
97.18
97.85
4.90%
8.38%
--
Oct 05, 2023
High Yield Bond 1
91.43
98.92
14.82%
17.59%
--
Investment Grade Bond 1
96.35
100.97
10.55%
15.58%
--
High Yield Bond 2
83.75
94.30
18.97%
17.59%
High Yield Bond 3
97.83
104.57
15.44%
17.59%
--
Jun 22, 2023
Two other picks previously exited
High Yield Bond 1
95.35
99.45
13.37%
17.00%
--
High Yield Bond 2
93.63
98.30
15.76%
17.00%
--
Mar 08, 2023
Three other picks previously exited
High Yield Bond 4
85.00
91.40
13.63%
19.24%
--
Nov 16, 2022
Two other picks previously exited
Short Term Investment Grade Bond 1
101.20
100.30
9.08%
11.81%
--
Long Term Investment Grade Bond 1
103.91
103.29
9.71%
14.39%
--
High Yield Bond 2
96.85
101.66
20.23%
21.30%
--
One other pick previously exited
Short Term Investment Grade Bond 2
97.22
97.79
10.07%
11.70%
--
Short Term Investment Grade Bond 3
101.37
99.82
9.38%
11.89%
--
Short Term Investment Grade Bond 4
100.19
99.47
8.85%
11.89%
--
High Yield Bond 1
94.11
93.21
10.67%
14.27%
--
High Yield Bond 2
91.60
90.62
10.15%
14.27%
--
High Yield Bond 3
94.57
98.38
17.91%
14.27%
High Yield Bond 4
89.04
91.72
14.77%
14.27%
High Yield Bond 5
88.78
87.14
7.12%
14.27%
--
High Yield Bond 6
92.35
89.55
13.20%
14.27%
--
Jan 12, 2022
One other pick previously exited
High Yield Bond 2
98.10
92.25
5.06%
8.56%
--
Investment Grade Bond 1
85.66
54.58
-27.88%
-5.11%
--
Investment Grade Bond 1
89.85
57.91
-28.37%
-8.35%
--
Investment Grade Bond 2
104.48
76.33
-18.61%
-8.35%
--
High Yield Bond 1
100.22
93.16
9.04%
8.09%
High Yield Bond 2
109.85
101.97
12.35%
8.09%
Investment Grade Bond 3
93.46
61.25
-25.84%
-8.35%
--
High Yield Bond 1
98.60
76.02
-7.67%
10.81%
--
Investment Grade Bond 1
92.52
67.53
-15.75%
-4.45%
--
Investment Grade Bond 2
87.12
60.12
-21.37%
-4.45%
--
High Yield Bond 2
97.17
89.57
4.45%
10.81%
--
High Yield Bond 1
101.35
101.45
23.52%
11.87%
High Yield Bond 2
103.35
104.25
26.27%
11.87%
High Yield Bond 3
113.60
94.28
5.52%
11.87%
--
High Yield Bond 4
118.10
49.40
-32.97%
11.87%
--
Investment Grade Bond 1
90.07
63.17
-19.53%
-3.50%
--
Investment Grade Bond 2
85.32
60.02
-19.83%
-3.50%
--
Two other picks previously exited
Investment Grade Bond 1
96.30
58.21
-30.31%
-7.87%
--
Investment Grade Bond 2
98.55
61.93
-27.12%
-7.87%
--
High Yield Bond 3
101.98
59.63
-18.45%
12.94%
--
One other pick previously exited
Investment Grade Bond 1
110.86
93.66
4.32%
-6.17%
High-Yield Bond 1 (split-rated)
94.34
87.26
13.59%
18.57%
--
Investment Grade Bond 2
96.04
62.81
-22.39%
-6.17%
--
Four other picks previously exited
Investment Grade Bond 2
95.56
86.82
10.83%
-2.30%
Three other picks previously exited
High-Yield Bond 2 (split-rated)
88.85
83.39
20.44%
18.57%
Three other picks previously exited
High Yield Bond 1
99.48
106.27
42.12%
20.38%
May 31, 2019
Two other picks previously exited
Investment Grade Bond 1
91.43
80.44
12.37%
10.19%
Investment Grade Bond 2
86.54
78.98
15.93%
10.19%
Mar 15, 2019
Three other picks previously exited
Investment Grade Bond 1
87.95
76.83
19.87%
14.63%
May 31, 2018
Two other picks previously exited
High Yield Bond 1
91.66
104.78
63.12%
31.42%
May 02, 2018
One other pick previously exited
Investment Grade Bond 1
76.60
1.25
-67.83%
12.22%
--
Sep 26, 2017
Three other picks previously exited
Investment Grade Bond 1
86.86(5)
1.25
-66.73%
8.25%
--

HISTORICAL CORPORATE BOND RETURNS UPDATES

The above tables show our corporate bond returns from the initial recommendation date (or "Pick Date") until either the sell date or the date indicated for our current bond recommendations. In July 2022, we began providing periodic updates on key drivers of our investment returns. We plan to provide this additional color each time we update BondSavvy's corporate bond returns.

July 2023 Corporate Bond Returns Update

Through July 31, 2023, Bondsavvy had made 113 corporate bond recommendations.  These include 59 individual bonds we currently recommend as buy (32) or hold (27) and 54 bonds we previously recommended but have since recommended selling.  This corporate bond returns update discusses the drivers of the performance of the 59 corporate bonds we currently rate either buy or hold.Corporate Bond Returns of Our Last Five Sets of Recommendations Bondsavvy presents subscribers new corporate bond recommendations during The...

Through July 31, 2023, Bondsavvy had made 113 corporate bond recommendations.  These include 59 individual bonds we currently recommend as buy (32) or hold (27) and 54 bonds we previously recommended but have since recommended selling.  This corporate bond returns update discusses the drivers of the performance of the 59 corporate bonds we currently rate either buy or hold.

Corporate Bond Returns of Our Last Five Sets of Recommendations 

Bondsavvy presents subscribers new corporate bond recommendations during The Bondcast, a quarterly live webcast that includes subscriber questions and answers.  During each edition of The Bondcast, we typically present four to six new corporate bond recommendations.

We made our last five sets of recommendations on June 22, 2023, March 8, 2023, November 16, 2022, June 16, 2022, and April 6, 2022.  You can see the corporate bond returns of these and all other investment recommendations in the above tables.  

Given how aggressive the Federal Reserve was with increasing interest rates starting in early 2022, our recent recommendations were primarily bonds with high yield bond ratings and short term investment grade bonds.  These bonds are generally less sensitive to movements in the US federal funds rate. 

As we discuss in our corporate bond credit spreads blog post, corporate bond yields to maturity (YTM) are driven by the "benchmark US Treasury YTM" and the corporate bond's credit spread.  The benchmark US Treasury yield is the YTM of a US Treasury note, bond, or bill that has a similar maturity date to a specific corporate bond.  The smaller a corporate bond's credit spread is to its YTM will make that bond more sensitive to movements in US Treasury yields vs. changes in credit spreads.  For example, YTM movements of a corporate bond with a 5.00% YTM and a 0.50% credit spread will generally be driven more by changes in US Treasury yields than in changes in credit spreads.

Figure 1 compares the effective federal funds rate to the YTMs of the 2 year Treasury, 10 year Treasury, and 30 year Treasury.  As the Federal Reserve kept increasing the federal funds rate (black bar), US Treasury yields largely followed suit until late 2022.  There was then a divergence between short- and long-term US Treasury yields, as the 2 year Treasury continued increasing to 5.00% on March 7, 2023, while the 10 year Treasury and 30 year Treasury YTM have generally been trading between 3.30% to 4.00% since January 1, 2023.  

Figure 1: US Treasury Yields vs. the Effective Federal Funds Rate -- November 30, 2021-July 31, 2023

july-31-2023-us-treasury-yields-vs-fed-funds-rate.png

The good news

The good news is that -- compared to 2022 -- bond markets have generally stabilized.  Of our 23 most recent bond recommendations, 19 (83%) have been profitable thus far.  As these investment recommendations were made between April 6, 2022 and June 22, 2023, we are still early in our likely holding period of these bonds.  While it is way too early to declare any of these investments an ultimate success, we are pleased that our recent recommendations have made money in a difficult environment for bonds.

Please note that, within the 23 recommendations, there was one bond we recommended selling on July 13, 2023.  This was the Mercer International 5.125% 2/1/29 bond (CUSIP 588056BB6), which had a terrible Q1 2023 and, when sold, recorded a -0.73% total return.

The bad news

While there were some bright spots, many picks made between September 23, 2020 and January 12, 2022 have delivered weak performance.  These bond recommendations were made when US Treasury yields were extremely low.  As Treasury yields rose, many of these bonds, especially long-dated investment grade corporate bonds, fell sharply.  Since long-term investment grade corporate bonds are heavily impacted by changes in long-dated US Treasury yields, we believe it will take some time for these bonds to recover in price.  

Recent Movements in US Corporate Bond Credit Spreads

If a corporate bond has a high credit spread relative to a bond issuer's underlying financials, that bond generally has a good value.  Identifying these undervalued corporate bonds is a key Bondsavvy focus when we make new corporate bond recommendations.

Figure 2 tracks the historical credit spreads of four high yield corporate bonds we recommended April 6, 2022.  In Figure 2's legend, we provide generic information about each bond, including the issuer's industry and the bond's maturity date.  Subscribe to Bondsavvy to learn the names and CUSIPs of all Bondsavvy investment recommendations.

As shown in Figure 2, the credit spreads of these four high yield bonds generally moved up from the April 6, 2022 pick date until May 19, 2022, when we provided our quarterly recommendations update on The Super Bondcast.  These credit spreads have generally trended lower since September 9, 2022.  As of August 3, 2023, the credit spread of each of the four bonds was lower than it was on the April 6, 2022 pick date.


Figure 2: Historical Corporate Bond Credit Spreads of Four Recent Bondsavvy Recommendations -- April 6, 2022-August 3, 2023

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What do these changes in credit spreads mean?

Even if underlying US Treasury yields are rising, a corporate bond's price can still increase if the credit spread falls by an amount greater than the benchmark Treasury YTM.  For several months after we issued these four recommendations, US Treasury yields rose and credit spreads rose.  This "double whammy" caused these high yield bond prices to fall.  The bonds have subsequently recovered some of their value, as the US Treasury market has stabilized and credit spreads for these bonds have fallen.

While falling credit spreads has been a good thing for these bonds, it does mean that a buyer of these bonds today will generally have less capital appreciation opportunity than buyers of the bonds in May 2022 when credit spreads were higher.  When credit spreads are relatively high, it means they have more room to fall.  The more a credit spread falls (assuming no change in underlying US Treasury yields), the more a corporate bond price can increase.

January 2023 Corporate Bond Returns Update

Corporate bond prices have rallied from lows reached in October 2022, as longer-term US Treasury yields have fallen and many high yield corporate bonds have risen due to strong recent financials of many issuers. This corporate bond returns update includes the following two sections related to BondSavvy's investment performance through January 31, 2023: Section 1: Drivers of BondSavvy's Corporate Bond Returns Section 2: Review of BondSavvy's Corporate Bond Returns vs. iShares Corporate Bond ETFs Through January...

Corporate bond prices have rallied from lows reached in October 2022, as longer-term US Treasury yields have fallen and many high yield corporate bonds have risen due to strong recent financials of many issuers. This corporate bond returns update includes the following two sections related to BondSavvy's investment performance through January 31, 2023:

Section 1: Drivers of BondSavvy's Corporate Bond Returns

Section 2: Review of BondSavvy's Corporate Bond Returns vs. iShares Corporate Bond ETFs Through January 31, 2023

Section 1: Drivers of BondSavvy's Corporate Bond Returns

While many factors impact corporate bond returns, two of the largest drivers are the US Treasury market and the financial performance of our corporate bond issuers. Please read our corporate bond credit spreads blog post to learn how investment grade corporate bonds and high yield corporate bonds are impacted in different ways by these factors.

Financial Performance of Our Recommended Bond Issuers

In the second half of 2022, not a day went by without certain investing experts and talking heads saying we were already in a recession. Then, Q3 and Q4 2022 GDP growth came in at +3.2% and +2.9%, respectively, according to the US Bureau of Economic Analysis. In January 2023, the US economy added 517,000 jobs and unemployment fell to 3.4%.

While these figures point to a strong overall US economy, company earnings provide a clearer picture of how certain sectors of the economy are performing. It's this financial performance that can drive corporate bond prices, especially high yield corporate bonds, as these bond prices are generally more influenced by the issuing company's financial performance than investment grade corporate bonds.

Figure 1 shows the year-to-date 2022 revenue and EBITDA growth issuers of BondSavvy-recommended bonds reported through December 15, 2022. As of January 31, 2023, we rated 52 corporate bonds as either a 'buy' or 'hold.' These 52 corporate bonds were issued by 46 different companies, as, for certain issuers, we recommended two bonds of the same issuer. Of these 46 issuers, there were two that were involved in an asset sale transaction, and we are currently awaiting financials for both stand-alone entities. Therefore, the two below charts include the financial performance of 44 bond issuers.

Figure 1: Financial Performance of Companies Issuing BondSavvy-Recommended Bonds -- Reported Through December 15, 2022

financial-performance-of-bondsavvy-issuers-ytd-q3-2022.png

Source: Company public filings and BondSavvy calculations

In Figure 1, we see the majority of our issuing companies have been growing. In the revenue chart on the left side of Figure 1, 33 of the 44 issuers reported positive revenue growth, with 17 issuers reporting year to date 2022 revenue growth of more than 10%. In year to date 2022 EBITDA, 28 of the 44 issuers reported growth, with 19 reporting EBITDA growth over 10%. Read our corporate bond leverage ratios blog post for more information on how EBITDA is calculated and why it's important.

While many of our corporate bond issuers reported strong year to date 2022 financials, others saw revenue and profitability declines. Certain of these companies were coming off a banner 2021, so some declines were expected. In addition, certain companies with weak 2022 financials had very large cash balances relative to their debt burden.

Two of our 46 issuers reported continued poor financial performance. These issuers have been cause for concern over the last several quarters and are working toward turning around their businesses. We update all of our buy/sell/hold recommendations each quarter based on issuing company financial performance and the updated prices of our recommended bonds. For companies like these two that have struggled over several quarters, we offer additional recommendation updates as these companies attempt to improve their performance.

Movement in US Treasury Yields

As discussed in our credit spreads blog post, movements in US Treasury yields can have a significant impact on investment grade corporate bonds in particular. As US Treasury yields rose during much of 2022, this caused many corporate bond YTMs to rise, and many bond prices to fall. As short term US Treasury yields rose to high levels in 2022, we began recommending a number of short term investment grade corporate bonds. Until then, our investment grade bond recommendations were generally longer dated and heavily impacted by movements in long term US Treasury yields.

As shown in Figure 2, US Treasury yields moved higher from November 30, 2021 until October 2022. Many believe that, during periods of rising interest rates, investors should always stick to short term bonds. The problem with this thinking, as shown in Figure 2, is that, during 2022, short term bond yields rose much faster than long term bond yields. From November 30, 2021 to October 24, 2022, the two-year US Treasury yield increased 3.98 percentage points, from 0.52% to 4.50%. During this same period, 30-year Treasury yields increased 2.62 percentage points. That said, due to their long term maturities, the prices of many long dated investment grade corporate bonds fell substantially.

Figure 2: US Treasury Yields vs. Effective Fed Funds Rate -- November 30, 2021 to January 31, 2023

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Sources: United States Treasury and the Federal Reserve Bank of New York.

Since October 24, 2022, however, long term US Treasury yields began to fall, with the 10 year Treasury yield falling 0.73 percentage points (or 73 "basis points") and the 30 year Treasury yield falling 0.75 percentage points (75 basis points). These yields fell as inflation began to fall and investors believed the Fed would reduce the magnitude of further interest rate hikes.

While this drop in US Treasury YTMs caused many corporate bond prices to rally, investors must realize how volatile US Treasury YTMs can be. The rise in US Treasury yields caused corporate bond prices of many of the world's most profitable companies to fall to 60% of par value or lower during 2022. Investors can use these price drops to their advantage and purchase high quality bonds at compelling values.

Section 2: BondSavvy's Corporate Bond Returns vs. iShares Corporate Bond ETFs

We break out BondSavvy's corporate bond returns into two above tables: 1) corporate bond returns of our exited recommendations and 2) corporate bond returns of our current recommendations. Through January 31, 2023, BondSavvy had recommended 105 corporate bonds, of which, we have sold 53 and currently recommend 52 as either a buy or a hold.

Bonds We Sold During 2022

As most corporate bond prices fell during 2022, we did not see many opportunities to sell bonds. That said, we did sell four previous high yield corporate bond recommendations, all of which significantly outperformed the iShares HYG corporate bond ETF, as shown in Figure 3:

Figure 3: Recommendations BondSavvy Sold in 2022

Recommended Bond CUSIP Pick Date Sell Date Total Return iShares HYG Return
Albertsons 7.45% 8/1/29 013104AF1 9/26/17 3/24/22 79.52% 15.18%
Laredo Petroleum 9.50% 1/15/25 (Now "Vital Energy") 516806AF3 12/18/20 3/24/22 31.71% -0.93%
Quad / Graphics 7.00% 5/1/22 747301AC3 12/12/19 5/1/22 26.03% 0.59%
Exterran Energy 8.125% 5/1/25 30227KAE9 1/12/22 10/21/22 14.36% -13.51%

BondSavvy generally sells bonds before maturity to secure capital appreciation and maximize total returns. In 2022, we held the Quad '22 date until maturity and achieved a 26.03% total return vs. 0.59% for the iShares HYG ETF. The Exterran Energy '25 bond was called in connection with the company being acquired by Canada-based Enerflex. Its acquisition by Enerflex, a company with a higher bond rating, caused the Exterran '25 bond price to increase, which was one of a limited number of corporate bonds to achieve capital appreciation in 2022.

As shown in Figure 3, at times, BondSavvy recommendations can significantly outperform the iShares corporate bond ETFs. As we will show in the next section, however, there can be times where our recommendations can underperform certain bond index funds. Since bond index funds typically own hundreds or thousands of bonds, their prices are generally less volatile than an individual bond. Individual bond investors must be able to accept this volatility as part of their investing. If they can, we believe an investor's long-term performance can outperform bond funds. At times, this outperformance can be significant.

All Exited Recommendations Through January 31, 2023

Through January 31, 2023, we had exited 53 of our 105 recommended bonds. Of the 53 bonds we sold, we outperformed the benchmark iShares LQD and HYG ETFs for 40 picks, or 75.5% of our recommendations. What's more, for 17 of our exited recommendations, we outperformed by more than 10 percentage points. Through January 31, 2023, there were only two cases where iShares outperformed BondSavvy by at least 10 percentage points. Those two cases related to two JCP bond recommendations, where the company filed for Chapter 11 in the wake of Covid-19 store closures in 2020.

Corporate Bond Returns of Current Buy/Hold Recommendations

In the Corporate Bond Returns of Current Recommendations table above, we show the performance of the 52 bonds we currently rate either buy or hold vs. the iShares corporate bond ETFs. While we have been pleased with the performance of our 53 exited recommendations, registering beats in 40 of 53 vs. the iShares LQD and HYG ETFs, the performance of many current buy/hold recommendations has not met expectations.

Many corporate bonds hit their lows in October 2022, and a good number have recovered since then. That said, there is a long way to go for many of our recommendations. We can break the performance of our buy/hold recommendations into three groups based on pick dates:

Group 1: April 6, 2022-November 16, 2022 Pick Dates

In this group, we have outperformed the iShares corporate bond ETFs for 9 of the 15 picks. Since these picks are less than a year old, it is not time to declare victory or spike the football. That said, as interest rates began increasing earlier in 2022, we focused our recommendations on high yield and short-term corporate bonds. These bonds have, generally speaking, held their value, but there is a long way to go before these become successful long-term recommendations.

Group 2: December 17, 2020-January 12, 2022 Pick Dates

While we had two successful exits from recommendations in this group (Exterran '25 +14.36% and Laredo '25 +31.71%), many of these 22 recommendations have been disappointing. These picks include a number of long-dated investment grade bonds that fell as Treasury yields spiked and several high yield issuers that reported weak financials or that had their bonds sell off for other reasons.

Group 3: September 26, 2017-September 23, 2020 Pick Dates

This group shows the benefit of longer holding periods with our recommended bonds. In this group of 15 recommendations, we have outperformed in 11 picks. Since the yields of our bonds are generally higher than those offered by the leading bond funds, nearly three-quarters of these picks have outperformed, and some of them significantly. Two of the picks (issued by the same company) have been damaged by the weak financial performance of the issuing company. There was concern this company would be filing for Chapter 11; however, it was able to secure a financing package that gave it an opportunity to turn around its business. The bond prices of these recommended bonds have increased since January 31, 2023; however, the company has a very long way to go.

November 2022 Corporate Bond Returns Update

Through October 31, 2022, BondSavvy has made 100 corporate bond investment recommendations.  Of these 100 picks, we have sold (or "exited") 53 of them.  We recommended five new bonds November 16, 2022; however, these picks are not yet included in our performance data since they were made only two weeks before the end of the November 30, 2022 corporate bond returns update period.  As shown above in the Corporate Bond Returns for Exited Recommendations table, for our...

Through October 31, 2022, BondSavvy has made 100 corporate bond investment recommendations.  Of these 100 picks, we have sold (or "exited") 53 of them.  We recommended five new bonds November 16, 2022; however, these picks are not yet included in our performance data since they were made only two weeks before the end of the November 30, 2022 corporate bond returns update period.  

As shown above in the Corporate Bond Returns for Exited Recommendations table, for our 53 exited recommendations, we have beaten the iShares LQD and HYG corporate bond ETFs 40 times, or 75.5% of our exited bond picks.  For 17 of our exited recommendations, we have beaten the iShares ETFs by at least 10 percentage points.  For our 53 exited recommendations, there have only been two cases where the iShares corporate bond ETFs outperformed BondSavvy by 10 percentage points or more.

Corporate Bond Return for Exterran 8.125% '25 Exited Recommendation

Bond price appreciation has been rare in 2022; however, our recently exited Exterran '25 recommendation (CUSIP 30227KAE9) is one of the few corporate bonds that increased in price during 2022.

Exterran Energy was a global provider of natural gas processing and treatment solutions.  We recommended the Exterran bond on January 12, 2022 at a price of 94.61.  Shortly after we made the recommendation, Canada-based Enerflex announced it agreed to acquire Exterran.  As Enerflex was deemed to have a higher credit quality than Exterran, the Exterran bonds increased in price to above par value

When one company acquires another company, the acquiring company typically assumes the debt of the company being acquired.  This is why the Exterran bond increased in price, as the bond would now be the obligation of a company with a higher corporate bond rating.  

That said, as part of the Exterran acquisition, Enerflex obtained new financing at a lower rate than the 8.125% Exterran was paying on its bonds.  As a result, Exterran called the bonds October 21, 2022 at a price of 102.03.  Assuming a 94.61 purchase price and a 0.1-point markup on the purchase, the investment generated a total corporate bond return of 15.30% compared to a -13.51% return of the iShares HYG ETF during the same period.

Exited Returns Have Outperformed Most Recent Recommendations  
Above, we displayed our corporate bond returns in two separate areas: Exited Recommendations and Current Recommendations.  While we have been pleased with the performance of our exited recommendations, a number of our current recommendations have performed poorly.

The greatest number of bonds with weak performance have been long-dated investment grade corporate bonds, which have been hurt by higher US Treasury yields.  As shown in Figure 1, long-term US Treasury yields were on an upward path until October 24, 2022 when the 10 year US Treasury YTM was 4.25% and the 30 year US Treasury YTM was 4.40%.  These US Treasury YTMs fell significantly from October 24 until November 30, 2022, with the 10 year US Treasury YTM falling 0.57 percentage points (or 57 "basis points") and the 30 year US Treasury YTM falling 0.60 percentage points (or 60 basis points).   

Figure 1: US Treasury Yields vs. Effective Fed Funds Rate: November 30, 2021-November 30, 2022 

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Many investors automatically believe that investing in short-term bonds is always the best play in a rising interest rate environment.  Unfortunately, that strategy hasn't been a good one in 2022, as short-term bond yields have risen substantially more than long-term bond yields.  As shown in Figure 1, the two-year US Treasury YTM has increased 3.86 percentage points (386 basis points) from November 30, 2021-November 30, 2022, while the 30-year US Treasury YTM has increased 2.02 percentage points (202 basis points) over the same time period.

While the prices of short term investment grade corporate bonds have generally fallen less than long term investment grade corporate bonds in 2022, purchasing short term investment grade bonds in 2021 was not compelling, as most YTMs of such bonds were very low. For example, the YTM on the Apple 3.45% 5/6/24 bond (CUSIP 037833AS9) was 0.47% on August 2, 2021 when the bond traded at 108.15.  On November 30, 2022, the Apple '24 bond was trading at a price of 98.52 and a 4.53% YTM.  

As short term bond yields began rising in 2022, we made four new short term corporate bond recommendations on June 16, 2022.  Such short term corporate bond investments will not be home runs, but they do enable investors to lock in 4-5+% YTMs over the next several years.

Other Factors Driving Corporate Bond Prices Lower in 2022

Apart from the negative impact of rising US Treasury yields, three of our high yield corporate bond recommendations have been hurt by weak issuing company financial performance.  Another high yield bond (High Yield Bond 4 from March 11, 2021) fell significantly in price, as the bond was assumed as part of an acquisition, and the acquiring company heaped billions of new senior debt on the issuing company.  This caused the bond's rating to fall, and its price fell with it.

The Exterran '25 bond is the only recommendation we have sold in the second half of 2022.  Falling bond prices will generally extend the holding time of our bond recommendations.  In addition, should issuing company fundamentals remain strong, we will often recommend subscribers purchase more of a bond that has fallen in price.

Many Bonds Still Available at Low Prices
As shown in our Current Recommendations tables, there are many corporate bonds priced in the 60s and 70s.  Many of these bonds are issued by the world's most profitable companies and can provide compelling upside opportunities with very low default risk.

July 2022 Corporate Bond Returns Update

The first half of 2022 was a rough one for bond investments, including many BondSavvy recommendations. We were pleased to see the market recover during July 2022, as 46 of our 48 bond recommendations achieved total investment returns of at least 1.86%, 34 returned at least 5%, and 20 picks returned at least 7%. Figure 1 provides a summary of the investment returns our 48 corporate bond recommendations achieved during July 2022: Figure 1: BondSavvy Investment...

The first half of 2022 was a rough one for bond investments, including many BondSavvy recommendations. We were pleased to see the market recover during July 2022, as 46 of our 48 bond recommendations achieved total investment returns of at least 1.86%, 34 returned at least 5%, and 20 picks returned at least 7%.

Figure 1 provides a summary of the investment returns our 48 corporate bond recommendations achieved during July 2022:

Figure 1: BondSavvy Investment Performance for July 2022 (1)

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(1) Please see Figure 2 for additional information on our investment return calculations.

As of July 29, 2022, BondSavvy's 48 corporate bond recommendations included 28 high yield corporate bonds, 16 long term investment grade corporate bonds, and 4 short term investment grade corporate bonds.  Figure 2 shows the July 2022 performance of all corporate bond picks made prior to June 16, 2022 and, for our June 16, 2022 picks, their performance since the pick date. We also compare each group of bonds to the benchmark iShares corporate bond ETF.

Subscribe to BondSavvy to learn the names, CUSIPs, and investment rationale for each corporate bond recommendation.

Figure 2: Summary of July 2022 Corporate Bond Returns for Each Bond Recommendation

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July 2022 Corporate Bond Returns vs. iShares Corporate Bond ETFs

We outperformed the iShares HYG high yield corporate bond ETF for 14 of our 28 (50%) high yield bond recommendations. We outperformed the iShares LQD investment grade corporate bond ETF for 14 of our 16 (87.5%) long-term investment grade bond recommendations. Thus far, all of our June 16, 2022 short-term bond recommendations have outperformed the iShares SLQD 0-5 year investment grade corporate bond ETF.

Key Drivers of July 2022 Corporate Bond Returns

A key driver of strong July 2022 corporate bond returns was the fall in US Treasury yields since they reached a peak on June 14, 2022. As shown in Figure 3, YTMs of the 2-, 10-, and 30-year Treasury all fell, with the 10-year US Treasury YTM falling the most: 82 basis points (or 0.82 percentage points) from 3.49% to 2.67%.

Figure 3: Year-to-Date 2022 US Treasury Yields

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Credit spreads for many of our recommended corporate bonds fell as well. For example, the credit spread for High Yield Bond 5 fell 90 basis points (bps), from 5.38% on June 30, 2022 to 4.48% on July 29, 2022. This was a big driver of its strong July 2022 corporate bond return. The credit spread of High Yield Bond 1, July 2022’s best performer, fell 93 bps. This bond price increased more than that of High Yield Bond 5 due to Bond 1's longer-dated maturity.

CASE STUDIES OF CORPORATE BOND RETURNS FOR EXITED BONDSAVVY RECOMMENDATIONS

Many investors believe that 'interest rates' are the only thing that impact bond prices. We have two real-world examples that will hopefully dispel this notion once and for all.

On September 26, 2017, during the premier edition of The Bondcast, we recommended Verizon 3.85% 11/1/42 (CUSIP 92343VBG8) and Albertsons 7.45% 8/1/29 (CUSIP 013104AF1). Understanding the changes in these bond prices helps investors better understand what to look for when investing in bonds and what causes bond prices to rise and fall.

Verizon 3.85% '42 Case Study

Verizon is an investment-grade issuer, as its bonds are rated Baa1/BBB+ by Moody's and S&P, respectively. Bonds rated at least Baa3/BBB- are deemed 'investment-grade,' meaning that the credit rating agencies believe they have a lower risk of default than 'high-yield bonds,' which have lower ratings.

In the below chart, we compare changes in the price of the Verizon 3.85% 11/1/42 to its benchmark US Treasury 2.75% 11/15/42 (CUSIP 912810QY7). The reason it is called the 'benchmark' is that the maturity date of this Treasury bond is almost identical to that of the Verizon bond. The price of this US Treasury bond moves up and down based on the demand for this government bond. As the price for this Treasury bond increases or decreases, its yield to maturity ("YTM") moves in the opposite direction. The yield to maturity of this Treasury bond is telling investors what the 'risk-free' investment return is for a Treasury bond that matures 11/15/42, as the US Treasury is deemed to have no default risk. (We don't believe the US government has zero risk of defaulting, but that discussion is for another post.)

When the Verizon bond -- and nearly all other investment-grade corporate bonds -- are quoted on a trading desk, they will be quoted as a spread to the benchmark Treasury. This spread is referred to as the credit spread. For example, suppose:

Verizon 3.85% '42 YTM: 4.22%

US Treasury 2.75% '42 YTM: 2.89%

Credit spread:1.33%

The Verizon bond's YTM is the result of changes in the benchmark Treasury AND the credit spread. As Verizon's credit quality improves, its credit spread will typically shrink, as investors will require less return above the benchmark Treasury to compensate them for the extra credit risk they are taking. When the credit spread shrinks, the bond's yield to maturity decreases and the price of the bond increases. Similarly, if the benchmark Treasury yield moves up or down, that component of the Verizon bond's YTM will also move up or down.

A real-life example is shown in the below charts, which show bond price changes for the Verizon '42 bond we recommended September 26, 2017 and its benchmark Treasury. Since we recommended the Verizon bonds, they have increased in price 12.5 points, from September 26, 2017 through June 30, 2019, generating a total return of 21.4%, while the benchmark Treasury increased 4.3 points during the same time period. The Verizon bond price increase happened because the credit spread for these bonds shrunk, as Verizon has been reporting strong financial results. While moves in the '42 Treasury bond do impact the price of the Verizon '42 bond, the two bonds do not move in lockstep. In this case, Verizon's strong operating performance enabled the bonds to increase in price well beyond the price increase of the benchmark US Treasury bond.

Corporate bond returns

Sources: Historical prices are from FINRA market data. The prices used to calculate the Verizon bond's total return are from Fidelity.com. Total returns include interest income accrued and/or received and capital appreciation. Returns do not contemplate re-investment of interest income. Total returns are not annualized returns.

Albertsons 7.45% '29 Case Study

Bonds rated below investment grade (aka 'high-yield bonds') do not trade in relation to their benchmark Treasury as shown in the below chart, which compares changes in the Albertsons 7.45% '29 bond (CUSIP 013104AF1) we recommended to its benchmark 6.125% 8/15/29 Treasury (CUSIP 912810FJ2). High-yield bonds are known as a 'credit investment,' and their price is driven by changes in the underlying credit quality of the bond issuer. For example, for the first half of 2017, the Albertsons bonds were trading at or above 96. Then, in June 2017, Amazon announced it was purchasing Whole Foods, and many investors thought Albertsons wouldn't be able to compete, which caused the bonds to fall into the 70s, at which point we recommended the bonds at 78.50 on September 26, 2017.

Since then, Albertsons has delivered strong financial performance, and the bonds increased in price 18 points from the date we recommended the bonds through June 30, 2019. You'll see the benchmark Treasury fell 2.4 points during this same time period, and movements in the prices in both bonds were not correlated.

High Yield Return

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How We Maximize Investment Returns

Many investors believe corporate bond returns are limited to a bond's yield. They build ill-conceived bond ladders, hold bonds to maturity, and then do it all over again. Investors who build bond ladders and hold bonds to maturity will never achieve a return higher than a bond's yield to maturity.

Luckily, there is a better way, which can drive higher returns for bond investors.

Through our investment analysis, we identify corporate bonds that are undervalued relative to other bonds in the marketplace. These bonds pay coupons higher than other corporate bonds with similar risk and have an opportunity to increase in price and drive investment returns that have beaten the world's most popular bond funds and ETFs.

What Corporate Bond Returns Do We Seek To Achieve?

While annual total returns can vary year to year, our goal is to recommend bonds that can achieve annualized total returns in excess of 10%. We recommend both investment grade corporate bonds and high yield corporate bonds, and we have shown that high returns are not only the domain of the riskiest bonds.

As we show on our corporate bond returns page, many of our highest-returning bonds were rated investment grade. Since bond ratings are biased toward large companies and generally ignore a bond's price, yield, liquidity, maturity date vs. bonds issued by the same company, and interest-rate sensitivity, we find them to have limited use for the serious corporate bond investor.

How Do We Maximize Corporate Bond Returns?

There are three key components to how we maximize corporate bond returns:

1) Be Selective: On any given day, there are 9,000 individual corporate bonds available to individual investors. BondSavvy's Job #1 for our fixed income newsletter subscribers is to narrow the corporate bond universe to a select number of corporate bonds that can beat the market.  Our comprehensive investment analysis is at the center of identifying corporate bonds with strong upside with a reasonable level of risk.  Selectivity is one of the biggest advantages of owning individual corporate bonds vs. bond funds, as we can focus on investments with the best risk/reward opportunities. Our investment analysis is a big step up from the old way of bond selection, where investors would simply look at a bond's rating and its YTM and buy bonds.

2) Carefully Monitor Financial Performance of Issuing Companies: BondSavvy makes 20+ initial buy recommendations each year. We make an initial recommendation based on where we find value on each new bond recommendation date. Over time, the recommended bond's price will move, and the financial performance of the issuing company could either improve or worsen. As a result of these changes, BondSavvy updates its corporate bond recommendations following company quarterly earnings releases during The Super Bondcast. During this subscriber webcast, we update subscribers on the financial performance of each company and whether our previously recommended bonds are buys, sells, or holds.

In addition to The Super Bondcast, we provide our bond newsletter subscribers email updates on whether our corporate bond recommendations change in between editions of The Super Bondcast.

3) Sell Bonds To Maximize Returns When Upside Wanes: Since our goal is to maximize total returns and achieve returns higher than a corporate bond's YTM, we typically sell bonds before maturity. Corporate bonds do have ceilings and cannot increase without limit like stocks. Given the favorable tax treatment of capital gains, after tax, one dollar of capital gain is worth more than one dollar of interest income. We are, therefore, vigilant when monitoring our corporate bond recommendations so we can protect our capital gains and maximize returns.

A Word About Corporate Bond Returns Shown in Your Brokerage Account

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 when investing in bonds online to see what the current market price of your corporate bond is.

In addition, brokerages typically only show the bond's capital gain/loss when showing its return. Most do not show a bond's total return, which includes interest income received and accrued plus capital appreciation / loss. When we calculate our investment returns, we show total returns and compare these to leading corporate bond ETFs.

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Case Studies Of Corporate Bond Returns For Exited BondSavvy Recommendations

Many investors believe that 'interest rates' are the only thing that impact bond prices. We have two real-world examples that will hopefully dispel this notion once and for all.

On September 26, 2017, during the premier edition of The Bondcast, we recommended Verizon 3.85% 11/1/42 (CUSIP 92343VBG8) and Albertsons 7.45% 8/1/29 (CUSIP 013104AF1). Understanding the changes in these bond prices helps investors better understand what to look for when investing in bonds and what causes bond prices to rise and fall.

Verizon 3.85% '42 Case Study

Verizon is an investment-grade issuer, as its bonds are rated Baa1/BBB+ by Moody's and S&P, respectively. Bonds rated at least Baa3/BBB- are deemed 'investment-grade,' meaning that the credit rating agencies believe they have a lower risk of default than 'high-yield bonds,' which have lower ratings.

In the below chart, we compare changes in the price of the Verizon 3.85% 11/1/42 to its benchmark US Treasury 2.75% 11/15/42 (CUSIP 912810QY7). The reason it is called the 'benchmark' is that the maturity date of this Treasury bond is almost identical to that of the Verizon bond. The price of this US Treasury bond moves up and down based on the demand for this government bond. As the price for this Treasury bond increases or decreases, its yield to maturity ("YTM") moves in the opposite direction. The yield to maturity of this Treasury bond is telling investors what the 'risk-free' investment return is for a Treasury bond that matures 11/15/42, as the US Treasury is deemed to have no default risk. (We don't believe the US government has zero risk of defaulting, but that discussion is for another post.)

When the Verizon bond -- and nearly all other investment-grade corporate bonds -- are quoted on a trading desk, they will be quoted as a spread to the benchmark Treasury. This spread is referred to as the credit spread. For example, suppose:

  • Verizon 3.85% '42 YTM: 4.22%
  • US Treasury 2.75% '42 YTM: 2.89%
  • Credit spread: 1.33%

The Verizon bond's YTM is the result of changes in the benchmark Treasury AND the credit spread. As Verizon's credit quality improves, its credit spread will typically shrink, as investors will require less return above the benchmark Treasury to compensate them for the extra credit risk they are taking. When the credit spread shrinks, the bond's yield to maturity decreases and the price of the bond increases. Similarly, if the benchmark Treasury yield moves up or down, that component of the Verizon bond's YTM will also move up or down.

A real-life example is shown in the below charts, which show bond price changes for the Verizon '42 bond we recommended September 26, 2017 and its benchmark Treasury. Since we recommended the Verizon bonds, they have increased in price 12.5 points, from September 26, 2017 through June 30, 2019, generating a total return of 21.4%, while the benchmark Treasury increased 4.3 points during the same time period. The Verizon bond price increase happened because the credit spread for these bonds shrunk, as Verizon has been reporting strong financial results. While moves in the '42 Treasury bond do impact the price of the Verizon '42 bond, the two bonds do not move in lockstep. In this case, Verizon's strong operating performance enabled the bonds to increase in price well beyond the price increase of the benchmark US Treasury bond.

Corporate bond returns

Sources: Historical prices are from FINRA market data. The prices used to calculate the Verizon bond's total return are from Fidelity.com. Total returns include interest income accrued and/or received and capital appreciation. Returns do not contemplate re-investment of interest income. Total returns are not annualized returns.

Albertsons 7.45% '29 Case Study

Bonds rated below investment grade (aka 'high-yield bonds') do not trade in relation to their benchmark Treasury as shown in the below chart, which compares changes in the Albertsons 7.45% '29 bond (CUSIP 013104AF1) we recommended to its benchmark 6.125% 8/15/29 Treasury (CUSIP 912810FJ2). High-yield bonds are known as a 'credit investment,' and their price is driven by changes in the underlying credit quality of the bond issuer. For example, for the first half of 2017, the Albertsons bonds were trading at or above 96. Then, in June 2017, Amazon announced it was purchasing Whole Foods, and many investors thought Albertsons wouldn't be able to compete, which caused the bonds to fall into the 70s, at which point we recommended the bonds at 78.50 on September 26, 2017.

Since then, Albertsons has delivered strong financial performance, and the bonds increased in price 18 points from the date we recommended the bonds through June 30, 2019. You'll see the benchmark Treasury fell 2.4 points during this same time period, and movements in the prices in both bonds were not correlated.

High Yield Return

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Investment Returns Table Footnotes

We compare our high-yield corporate bond returns with the iShares high-yield corporate bond ETF ("HYG") and our investment-grade corporate bond returns with the iShares investment-grade ("LQD") corporate bond ETF. The benchmark ETF is based on the Moody's and S&P rating of our recommended bond on the recommendation date. Split-rated bonds are compared to the HYG ETF. "NA" means "not applicable," as the bond shown is being compared to the other benchmark ETF. Please read additional disclosures provided in the footnotes below.

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. ACTUAL RESULTS MAY VARY BASED ON WHEN SUBSCRIBERS BOUGHT AND SOLD BONDS WE RECOMMENDED BUYING AND SELLING, THE BROKERAGE FIRMS THROUGH WHICH SUBSCRIBERS TRANSACT, BROKERAGE COMMISSIONS PAID, AND MARKET VOLATILITY.

* Source of bond price charts: FINRA market data. Total returns calculated by BondSavvy. Returns are not annualized.

(1) Prior to our March 11, 2021 recommendations, the pick date price is the top-of-book offer price shown on Fidelity.com the trading day prior to the pick date. Price assumes a $1/bond (0.1 points) mark-up on the quoted offer price. On March 11, 2021, we began hosting The Bondcast at 5:00pm EDT, so the pick date price for all recommendations beginning this date is the top of book price with at least 100 bonds in quantity shown on Fidelity.com the afternoon of the pick date.

(2) Bond prices reflect the higher of a) the average of up to four afternoon customer sell trades reported on the period-end date and b) the best bid price on Fidelity.com on the period-end date that could fill a sell order of at least 100 bonds.

(3) Returns are calculated from the trading date immediately prior to the pick date through the end of the period shown, with the exception of recommendations beginning March 11, 2021, which are calculated beginning on the pick date. For returns calculations under "Corporate Bond Returns of Current Recommendations," the Pick Date Price and end-of-period price are calculated pursuant to footnotes 1 and 2 above. For "Corporate Bond Returns of Exited Recommendations," the Pick Date Price is calculated pursuant to footnote 1. With respect to the selling price: (i) for bonds owned by our founder Steve Shaw, the selling price comes from his trade confirmation statements; (ii) for corporate bonds not owned by Mr. Shaw, the selling price reflects the top-of-book bid price available on Fidelity.com when the sell recommendation was issued or, for sells beginning September 10, 2020, the average of the three customer sell trades, as reported to FINRA TRACE, executed immediately after such sell recommendations were made. Beginning June 3, 2021, for sells of bonds not owned by Mr. Shaw, the sell price was based on the top-of-book bid price available on Fidelity.com on the sell date that could satisfy an order of at least 250 bonds. BondSavvy believes these returns may be understated compared to the methodology of iShares returns, as (a) BondSavvy's total returns do not factor in re-investment of interest income and capital gains, which the iShares returns do include and (b) the individual bond returns reflect a purchase at the offer price and a valuation at the bid price, which can negatively impact returns from 0.25 to 0.75 percentage points on average. The iShares returns are calculated based on changes in the fund's net asset value and, therefore, aren't penalized as significantly by a bid-ask spread. Returns calculations are not annualized. BondSavvy total returns include capital gain/loss and interest accrued.  

BONDSAVVY FEES ARE NOT INCLUDED IN THE RETURNS CALCULATIONS.  Each subscriber makes the final decision on which bonds to own and the amount to invest.  We therefore, for returns calculations purposes, do not allocate a portion of our subscription fee across each bond recommendation.  In addition, since Bondsavvy charges a flat fee to subscribers, the impact of our subscription fees would vary across investment size.  You can see our investment newsletter fees by clicking this subscribe to Bondsavvy link.  

(4) During the 11/19/18 Super Bondcast, we recommended subscribers buy additional amounts of these previous BondSavvy picks. We also updated all other prior BondSavvy corporate bond investment recommendations, other than three companies which had yet to report earnings. This was BondSavvy's first edition of The Super Bondcast, a subscriber-only webcast where we evaluate the financial performance of our issuing companies and the performance of each recommended corporate bond. In certain editions of The Super Bondcast, we may recommend buying bonds of recommendations we had previously made a 'Hold.' When we show 'Exited Recommendations,' these returns will show returns from both the initial pick date as well as from other times we recommended subscribers purchase these bonds over the course of our ownership of the bond. For simplicity, other than the 11/19/18 Super Bondcast, we only show the performance from the initial pick date for bonds listed under the heading 'Corporate Bond Returns of Current Recommendations.'

(5) BondSavvy recommended these bonds at 89.92 on September 26, 2017. The price shows the blended price Steve Shaw has acquired these bonds across four different transactions. Note that we no longer are recommending purchases of these bonds but now recommend shorter-dated bonds of the same issuer.

(6) Returns calculated based on the dates indicated in the first two sentences of Footnote 3. Source of iShares returns is the iShares website. We went to the home page for each iShares ETF, clicked "Performance" and then clicked the "View Full Chart" hyperlink under the "Growth of Hypothetical $10,000" heading. We then entered the various date ranges and recorded the investment returns shown for the specific iShares ETF. We compare our recommended short term investment grade bonds (which mature in 2028 or earlier) to iShares SLQD (the iShares short-term investment grade bond ETF) and all other investment grade corporate bonds to iShares LQD. Any time there is an "NA," it means that none of our recommended bonds on that pick date were being compared to that specific iShares ETF. For example, all of our June 16, 2022 picks were short-term investment grade bonds. Therefore, we only compared these bonds to iShares SLQD and not iShares LQD or HYG.

Bondsavvy has made 129 corporate bond recommendations between a) its first set of recommendations on September 26, 2017 and b) its September 5, 2024 investment recommendation updatesSubscribe to Bondsavvy to learn our 60+ current buy/hold recommendations.   

This chart compares the total returns achieved from our 66 exited bond recommendations to those achieved by the leading iShares corporate bond ETFs -- iShares LQD, iShares SLQD, iShares HYG, and iShares SHYG. A "Win" or "Beat" is any time our total return exceeded that of the iShares bond ETF. We show details of each Bondsavvy recommendation in the tables below this chart.

After we make an initial corporate bond recommendation, we update our recommendations during a quarterly Bondsavvy subscriber webcast called The Super Bondcast.  During each Super Bondcast, we update our buy/sell/hold recommendation for each of our previously recommended corporate bonds.

Each of the iShares bond ETFs have different holdings, which results in different levels of comparability to our bond recommendations. As shown in the below tables, we compare each of our bond recommendations to the iShares LQD, SLQD, or HYG based on the bond's rating as of the recommendation date. We compare all split-rated bonds (bonds rated investment grade by one rating agency and below investment grade by another) to the HYG ETF.

Please see additional disclosures regarding the calculations of our returns in the footnotes of the tables following this chart.

Following is a brief description of the iShares LQD, SLQD, and HYG corporate bond ETFs (all figures as of October 15, 2024):

BlackRock iShares LQD:

$28.6 billion investment grade corporate bond index fund that holds corporate bonds that have an average rating of at least Baa3 / BBB- (the lowest investment-grade bond rating) from Moody's, S&P, and Fitch. The fund held 2,828 bonds and had a weighted average maturity of 13.2 years. 

BlackRock iShares SLQD:

$2.1 billion short-term investment grade corporate bond index fund that holds corporate bonds that have an average rating of at least Baa3 / BBB- (the lowest investment-grade bond rating) from Moody's, S&P, and Fitch. The fund held 2,658 bonds and had a weighted average maturity of 2.25 years.

BlackRock iShares HYG:

$14.7 billion high yield corporate bond index fund that holds corporate bonds with an average rating of Ba1 / BB+ and lower. The fund held 1,261 bonds and a weighted average maturity of 3.9 years. 

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