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Steeper US yield curve improves bond income prospects

Thornburg Investment Management says the curve’s steepening has shifted the tradeoff, with corporate yields compressing versus Treasuries since 2023.

Reported · Written up by our desk · Debt Funds

Thornburg Investment Management says the US Treasury yield curve’s slope has become more attractive than it has been in more than 15 years, after spending much of 2022 and 2023 inverted.

In a report titled “Fortune Favors the Disciplined,” the firm said the relationship has flipped from earlier periods where short term yields ran higher than long term yields, discouraging investors from locking up money for longer.

Thornburg said the steepening now creates a window for extending duration, meaning holding longer maturity bonds to potentially add income with limited added volatility or credit risk, compared with earlier “inverted” conditions.

The report also noted that corporate bond yields have compressed more than Treasury yields since 2023, narrowing how much extra income investors get for taking on credit risk, making high grade duration a more competitive income source.

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