Investment-Grade Corporate Bonds Draw Attention as Treasury Yields Hover Near 5%

Investors searching for income may be looking at one of the better entry points for corporate bonds in recent market history, according to a range of fixed income specialists. With the 10-year Treasury yield still hovering around 5% and the Federal Reserve widely expected to leave rates unchanged at its FOMC meeting on Wednesday, some experts describe highly rated investment-grade corporate debt as a "generational opportunity."

Much of the activity is being driven by hyperscalers such as Alphabet, Amazon, Meta and Microsoft, which have been borrowing heavily to finance artificial intelligence projects, including chip purchases and the construction of data centers and the power plants that supply them. Steven Purdy, group managing director and co-head of global credit at TCW in Los Angeles, said buyers are not usually able to get AA-type companies at yields this high.

Joseph Matus, principal at Cerity Partners, said the big tech balance sheets are strong and the debt is manageable, even if it is larger than in the past. The VettaFi AI Hyperscaler Bond Index, which follows debt from companies including Microsoft, Alphabet, Oracle, Amazon and Meta, yielded 6.51% at the end of September. According to TMX VettaFi, hyperscalers issued $93 billion in debt in 2025, compared with an average of about $35 billion a year from 2020 to 2024. Purdy said the amount is significant but not dangerous.

Not every AI-linked borrower is viewed so favorably. Shares of CoreWeave have come under pressure over its debt-funded expansion, and its bonds fell sharply in October as credit default swap spreads widened. S&P Global Ratings cut Oracle's debt in July to the lowest tier of investment grade. Meta, meanwhile, saw its free cash flow turn negative for the first time since its 2012 IPO, and this week announced a capital plan that includes selling up to $95 billion in stock offerings alongside debt and operating cash flow.

More borrowing may be on the way. JPMorgan projected in June that more than $4 trillion in AI-related debt could be issued through 2030, though growing skepticism among large institutional investors such as insurers could add pressure. Brian Barnhurst of PGIM Credit said hyperscalers need so much money that they will likely use every funding source. ProShares has also filed for an AI hyperscaler debt ETF, expected by early 2027, which would track a VettaFi index of such debt.

Matus warned that most investors already have heavy exposure to these companies through stocks. He said buyers should ask whether the extra yield is worth giving up diversification against "cracks in the AI story."

Advisers also point to other parts of the market. BondBloxx co-founder Joanna Gallegos said BBB-rated bonds, the lowest investment-grade tier, are yielding more than 6%. The iShares Core U.S. Aggregate Bond ETF (AGG), which holds nearly half its assets in Treasuries, has a 30-day SEC yield of 5.06% and a 0.03% expense ratio. Bob Shea of Dynasty favors active management and likes the iShares Flexible Income Active ETF (BINC), which had a 30-day SEC yield of 5.65% as of Oct. 23 and a 0.52% expense ratio.

Maturity is another consideration. Edison Byzyka of Credent Wealth Management wants portfolios with an average maturity of seven to eight years. The Vanguard Long-Term Corporate Bond ETF (VCLT) had a 30-day SEC yield of 6.39% and an average duration of 11.6 years. Purdy said longer-dated investment-grade bonds can pay 150 basis points or more above the 30-year Treasury, which he called unusual.

On junk bonds, Byzyka prefers BBB or better, where he sees yields of 6% to 6.5% without undue risk. He expects equity markets to correct, which would make high-yield debt more volatile than high-quality corporates.