Why You Should Hang on to Your Bonds

Now is not the time to cash in on the rally in investment-grade corporate debt.

In April 2008, I wrote here that triple-B means “buy, buy, buy.” Except for a brief period during the financial panic of late summer and fall of 2008, when virtually all securities (except for Treasury bonds) swooned, triple-B-rated corporate bonds have performed beautifully. Over the past 12 months through November 2, triple-B-rated corporates, the lowest investment-grade category, brought you a total return of 38%, compared with 11% for long-term Treasuries and 19% for long-maturity municipals. Combined, all investment-grade corporate bonds -- those rated triple-A through triple-B -- returned 31% over the past year.

These numbers may not be as impressive as the stock market’s gains since the March 9 bottom. But considering that we’re talking about bonds, not stocks, the numbers are breathtaking. A 7% return from long-term investment-grade corporates is good. A 9% return is excellent. A gain of more than 30% is akin to winning Powerball.

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Jeffrey R. Kosnett
Senior Editor, Kiplinger's Personal Finance
Kosnett is the editor of Kiplinger's Investing for Income and writes the "Cash in Hand" column for Kiplinger's Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.