Brexit worries have made investors run to the safety of government bonds. In the past week, we have seen Treasury yields in the U.S. drop to their lowest levels since 2012.
Meanwhile, in Europe, yields on German and Swiss government bonds have dropped into negative territory. For income investors, this is a big concern. While bonds are still returning 5%-6% because of capital appreciation, the returns are unsustainable if yields continue to move into negative territory. Recently, Janus Capital’s Bill Gross also raised concerns about the low yields.
For income investors, the high yield bond market still offers an attractive return. In fact, once Brexit worries ease, some of the money from safe haven assets could be pulled out and put into assets such as high yield bonds.
Canadian investors can consider BMO High Yield U.S. Corporate Bond Hedged CAD Index (ETF) (TSX: ZHY) to boost their portfolio returns. The ETF has been designed to replicate, to the extent possible, the performance of the broad United States high yield corporate bond market, net of expenses, through a passive investment in securities that track a widely recognized US high yield index.
