Koesterich Bullish on Corporate, Muni Debt

iShares Global Chief Investment Strategist Russ Koesterich has some ideas for investors looking to add to existing or initiate new bond positions: Favor corporate and municipal debt over Treasuries. With U.S. companies holding record levels of cash in dollar terms, balance sheets are as strong as they've been in decades and the spread between an index of Moody's Baa-rated bonds and the 10-Year Treasury is 330 basis points, roughly twice the sixty-year average, Koesterich said in a note. For investors looking to gain exposure to corporate bonds, Koesterich recommends the iShares iBoxx $ Investment Grade Corporate Bond ETF

, which is hitting a new 52-week high today as the broader market slides. With an expense ratio of just 0.15%, LQD has over $15.5 billion in AUM and over 700 holdings from the likes of Wal-Mart

, AT&T

and GE

among others. LQD is up 5% year-to-date. While noting the predictions regarding muni bonds have been far too glum, Koesterich said of munis: “...similar to corporate bonds, municipals currently provide a rich, after-tax yield versus Treasuries of a similar duration. An index of national long duration GO bonds is yielding roughly 3.8%. On a tax adjusted basis, that's roughly equivalent to a 6% yield for a theoretical taxpayer in the 35% bracket.” For muni exposure, Koesterich likes the iShares S&P National AMT-Free Municipal Bond Fund

. MUB is home to nearly 1,500 issues with an expense ratio of .25% and AUM of $2.27 billion. The ETF is up about 7% year-to-date.