Barclays Advises Selecting Build America Bonds with Minimal Call Risk for Potential Value Gain

Barclays Plc sees a chance to invest in Build America Bonds (BABs), even though some people worry about issuers calling them back early. Experts, like Mikhail Foux, say it’s smart to look at BABs that probably won’t get called back and have low interest rates.

For example, they point to the Salt River Project’s bond with a 4.8% interest rate that ends in 2041. This advice comes as investors worry that many issuers are swapping BABs for cheaper bonds without taxes because those bonds have lower interest rates.

An index that keeps track of BABs shows that they’re getting cheaper, which could mean good deals for careful investors.

Challenges Faced by Investors and Further Opportunities

Investors are dealing with a tricky bond market. Take, for example, the Regents of the University of California’s $1 billion refunding deal, which ran into legal issues because of its call provisions.

Excess return over Treasuries, strong investor demand, and sound corporate profits support investment-grade bonds. (Credits: E Trade)

This highlights the complicated risks and tactics involved in bond investing, especially when callable bonds and trends in refinancing can affect profits.

Despite these hurdles, more people are getting interested in bonds again, thanks to higher interest rates and better returns. Ordinary investors, especially, are getting more active, with a big increase in sales of Treasury bills and prevailing bond investments.

Fixed Revenue Sees Rise in Interest

The Federal Reserve raising interest rates has given the bond market a boost, making the returns more appealing for investors.

Despite a decrease from previous highs, investment-grade bonds remain attractive with a 5.5% yield. (Credits: Kruze)

This change is making people think again about including bonds in their investment mix, stepping away from the period of low returns that pushed many towards stocks.

Regular investors are looking into different types of bonds, like ones from companies and local governments, to get better returns.

But descending into bonds isn’t easy – investors have to figure out things like call provisions and how to handle changes in prices, which can be tough to grasp at first.

What is the Take of UBS in it?

UBS is optimistic about investment-grade corporate bonds, saying they still offer a good effective yield of about 5.5%, even though it’s a bit lower than last year’s highs.

UBS recommends focusing on the financial sector, a strategic preference for short- and intermediate-term durations. (Credits: Hugo Philpott)

The company says that investment-grade bonds give better returns than Treasury bonds and that there’s a lot of demand for them from investors. They also mention that companies are making good profits, which helps support the market.

UBS suggests looking into bonds from financial companies and sticking to shorter- and medium-term bonds to balance out the return and how much they might change in value.

Sajda Parveen
Sajda Parveen
Sajda Praveen is a market expert. She has over 6 years of experience in the field and she shares her expertise with readers. You can reach out to her at [email protected]
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