The consequences of not owning corporate bonds have become particularly clear since February 19. In less than three weeks, the S&P 500 has fallen 9.3% and the Nasdaq composite is down 13.1%.
During this time, individual corporate bonds have held strong, while continuing to pay income that is generally 5 to 6 times more than what is provided by the iShares IVV ETF, a $558 billion ETF that follows the S&P 500.
This fixed income blog post previews Bondsavvy's most recent corporate bond recommendations to show how corporate bonds have performed in the midst of recent stock market turmoil. We also discuss why investors should consider owning individual corporate bonds now.
Our Recommended Bonds to Buy 2025 Preview
Bondsavvy makes new corporate bond recommendations each quarter during The Bondcast, a webinar exclusive to Bondsavvy subscribers. These recommendations include both investment grade and high yield corporate bonds. The 66 bonds currently on Bondsavvy's buy/hold recommendation list offer a wide range of maturity dates and are from issuers across over 15 different industry groups.
Figure 1 provides a summary of the 16 corporate bond recommendations we have made over the last year. The table includes the pick date price, and the price and yield to maturity on March 11, 2025. For picks made before February 19, 2025, we also show the February 19 price, so investors can see how corporate bond prices have held up between February 19 and March 11, 2025. During this three-week period, the S&P 500 and Nasdaq composite indices fell 9.3% and 13.1%, respectively.
Key takeaways are as follows:
- For bonds recommended during 2024, bond prices increased for 7 of 12 recommendations between February 19 and March 11, 2025.
- The bond prices of our recently recommended bonds are still available at prices at or near the pick-date price, with 14 of 16 bond prices moving fewer than two points between the pick date and March 11, 2025.
- 12 of 16 bonds had YTMs of at least 5.50% as of March 11, 2025.
- As of March 11, 2025, the average YTM of our 16 best corporate bonds to buy was 6.08%, 5 times higher than the dividend yield currently offered by iShares IVV, the $558 billion ETF that tracks the S&P 500.
Figure 1: Bond Prices of Our Best Corporate Bonds To Buy 2025 -- Pick Date vs. March 12, 2024
| Pick Date Offer Price | Years to Maturity | February 19, 2025 Offer Price |
March 11, 2025 Offer Price |
March 11, 2025 Offer YTM |
Issuer Leverage Ratio* |
|
|---|---|---|---|---|---|---|
| March 6, 2025 Recommended Bonds to Buy | ||||||
| High Yield Bond 1 | 102.55 | 5 | NA* | 102.48 | 8.92% | 1.9x |
| Investment Grade Bond 1 | 99.39 | 9 | NA* | 98.79 | 5.67% | 3.0x |
| Investment Grade Bond 2 | 97.78 | 9 | NA* | 97.92 | 5.54% | 1.7x |
| Investment Grade Bond 3 | 98.84 | 15 | NA* | 98.27 | 5.67% | 2.4x |
| November 14, 2024 Recommended Bonds to Buy | ||||||
| Investment Grade Bond 1 | 88.73 | 20 | 86.84 | 87.51 | 5.75% | 3.6x |
| High Yield Bond 1 | 89.00 | 12 | 86.00 | 84.77 | 8.41% | 1.3x |
| Investment Grade Bond 2 | 104.64 | 10 | 103.86 | 104.53 | 5.29% | 1.3x |
| Investment Grade Bond 3 | 96.90 | 9 | 96.49 | 96.94 | 5.41% | 1.4x |
| July 11, 2024 Recommended Bonds to Buy | ||||||
| Investment Grade Bond 1 | 80.66 | 30 | 78.02 | 78.00 | 5.95% | 3.3x |
| Investment Grade Bond 2 | 72.95 | 27 | 73.03 | 72.85 | 6.19% | 0.8x |
| High Yield Bond 1 | 102.74 | 2 | 102.66 | 102.69 | 5.25% | 2.1x |
| High Yield Bond 2 | 103.51 | 9 | 101.85 | 101.75 | 6.24% | 2.9x |
| April 4, 2024 Recommended Bonds to Buy | ||||||
| Investment Grade Bond 1 | 102.54 | 9 | 104.35 | 104.52 | 5.68% | 1.3x |
| High Yield Bond 1 | 98.23 | 9 | 99.32 | 99.47 | 5.47% | 1.0x |
| Investment Grade Bond 2 | 104.30 | 8 | 104.91 | 105.83 | 5.42% | 0.8x |
| High Yield Bond 2 | 103.93 | 18 | 105.34 | 104.87 | 6.41% | 3.1x |
Sources: Pricing data are from Fidelity.com. *Leverage ratios are Bondsavvy calculations based on each company's most recent SEC filings as of December 12, 2024.
*Picks made after February 19, 2025.
A key part of our fixed income investment strategy is to identify bonds with high coupons relative to their risk and with upside potential. As shown in Figure 1, 11 of the 16 best bonds to buy 2025 had leverage ratios of 2.5x or less, a conservative level. In some cases, bonds rated below investment grade can have lower leverage ratios than those issued by investment grade companies. These are the types of opportunities where investors can capture a higher potential total return with limited default risk.
Can I Still Buy the Recommended Corporate Bonds Near the Pick Date Price?
As shown in Figure 1, as of March 11, 2025, the answer was generally 'yes.' Of the 16 recently recommended bonds, 14 were within two points of the pick-date price.
Owning individual bonds vs. bond funds is the more cost-effective way to invest in bonds, as investors do not pay recurring fees based on a percentage of what they invest. In addition, bond funds incur significant trading costs. Bond funds do not disclose the amount of these costs and exclude them from the "expense ratio" fund managers, such as Vanguard, trumpet. By taking actions to limit our market impact, we have enabled our subscribers to purchase bonds at competitive prices and to maximize their corporate bond returns.
Why Own Our Best Corporate Bonds To Buy 2025
Owning individual corporate bonds enables investors to lock in high income for a specific time period and to have the opportunity for capital appreciation. Individual corporate bonds also, at maturity, provide for a return of the $1,000 face value for each bond you own. With individual corporate bonds, investors can build bond portfolios suited to their investment objectives and risk tolerance.
Since corporate bonds are priced as a percentage of their face value, investors can evaluate a bond's price, YTM, and credit spread and compare these metrics to the bond issuer's financials. This financial analysis is the heart of the Bondsavvy subscription and enables us to identify bonds that can achieve strong total returns over the long term. This analysis is not possible when investing in bond funds and ETFs, as we discuss below.
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A compelling alternative to money markets, CDs, and bond funds
In the December 2024 Fed dot plot, the US Federal Reserve projected one point of additional interest rate cuts through 2026. Should this happen, popular money market funds such as Vanguard VMFXX will see their yields fall in lockstep with the Fed funds rate. In addition, since Vanguard VMFXX targets a net asset value per share of $1.00, VMFXX cannot have capital appreciation. Some CD rates may currently seem attractive; however, CDs often pay their income at the end of their term (compared to corporate bonds, which pay interest semi-annually), can come with onerous call provisions, and lack capital appreciation opportunities.
Mega bond funds such as Vanguard VBTLX are not fixed income investments. They do not pay a fixed coupon and do not return an investor's principal at maturity, as they do not have a maturity date. Bond funds such as VBTLX own thousands of bonds, which drives muted (and often low) returns and makes investors unable to build a portfolio that fits their investment objectives. Further, since bond funds and ETFs do not trade relative to a par value and lack underlying financial metrics, investors cannot assess whether a bond fund investment represents a compelling value.
Why Own Corporate Bonds Now
We strongly advocate investors build bond portfolios over time; however, as of this update, there are several factors making now a compelling time to invest in individual corporate bonds:
- The S&P 500 now trades near a 27x price-to-earnings (P/E) ratio compared to approximately 19x ten years ago, according to Gurufocus.com.
- The 30-day SEC yield for iShares IVV, the $558 billion ETF tracking the S&P 500, is currently 1.20%, about one-fifth the average YTM of our 16 recommended bonds to buy 2025
- Money market 7-day yields have fallen over one percentage point since September 2024, to 4.24% as of March 10, 2025. They could fall into the 3s should the US Federal Reserve cut rates further per the December 2024 Fed dot plot.
- Income distributions for bond funds and ETFs vary monthly and do not enable investors to lock in long-term income, as can be done with individual corporate bonds.
- Since bond funds and ETFs do not trade relative to par value and lack underlying financial metrics, investors cannot assess whether bond funds or ETFs are trading at compelling values.
