Barron’s had a good article this week on the bond market: Risk Has Been Rewarded; Perhaps Too Well?

During the depths of the credit crisis, non-Treasury debt was more or less priced for Armageddon.  Not shockingly, at such low levels, risky debt was priced for once-in-a-lifetime returns.  And that is exactly what bond investors received over the past year.  On a risk/return basis, non-Treasury debt has performed better stocks. Barron’s writes,

10-year Treasury delivered a negative return of 5.10% while investment-grade corporates returned 20.97% and junk returned 52.72%. By comparison, the Dow Jones Industrial Average returned 21.09% for the first 11 months of the year.

These kinds of returns in boring, old-fashioned bonds don’t last forever, particularly given that the supply of new bonds coming on line is rather large (implying that prices could, at least temporarily, come under pressure as supply swamps demand).  And with Treasuries still yielding far too little to be attractive, this leaves very few attractive options within the fixed income sector.  Investors looking for income in 2010 face the unfortunate prospect of taking increasing risk for smaller yields.  In this environment, high-dividend-paying stocks may be the lesser of two evils.

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy