Bonds: the Current Hot Tip to Make Money

The yields of corporative bonds are very attractive in these days. It is worthwhile to scrutinize this profitable investment opportunity. What has caused the appeal of investing in bonds?

The actual financial crisis has brought the prime rates and government rates to historical lows. This effect can be observed in different countries and markets. The monetary authorities have been forced to take vigorous measures in order to avoid a collapse of the financial markets after the bankruptcy of Lehman Brothers. Interest rates have been lowered by the Fed as well as other national or federal banks throughout the world.

The situation at the financial markets is still unstable and unpredictable. The trade among the banks revives only step by step although the rates for lending and borrowing money among the banks are very low. The Libor, e.g. London Interbank Offered Rate, is 2.20% in USD or 3.88% in Euros.

The yields, on corporate bonds, look however juicy. This is a sign that there is not much confidence in the economic future. The spread between the risk free rate and the rate for government bonds has achieved a peak. The average yield for a two year bond of an AA rated company is 6% and of a five year bond of an AA rated company 6.81% in the US. The yield of a two year US Treasury Bond is 1.06% and of a five year one 1.98%. There is a nice credit spread between the interest rate of a high quality corporate bond and the rate of a risk free government bond.

It has to be stated that the credit spreads are remarkably juicy in the United States. There is a similar effect in other markets but not to such an extension. A bond for Porsche, an outstanding German carmaker, shows a current yield of 4.71% compared to a current yield of a German government bond of 2.21%. The UK bond market looks more appealing than the German one. A bond of Tesco, a premium British retailer, shows a current yield of 6.38%, compared to the risk free government rate of 2.19%. It is recommendable to check the bond market of investment grade rated US and UK corporations for profitable opportunities. It is difficult to make money with other investments instruments in these days. More information around money issues is available at the forum of Make Money Tip.