Recent market volatility has created a compelling entry point for income investors to snap up investment-grade corporate bonds with attractive yields, according to Wells Fargo Investment Institute. Yields on broad investment-grade benchmarks are now sitting at around 5%, levels that are meaningfully higher than what they were for most of the past decade, said Luis Alvarado, co-head of the firm’s global fixed-income strategy. These have been largely driven by Treasury rates, not a deterioration in corporate fundamentals, he noted. Credit spreads remain relatively contained, he said. “From our perspective, this gives investors an interesting combination: historically attractive income with generally solid balance sheets and manageable credit risk, especially compared with riskier parts of the bond market,” Alvarado told CNBC. For instance, the iShares Broad USD Investment Grade Corp Bond ETF (USIG) currently has a 30-day SEC yield of 5.11%. It has a 0.04% expense ratio. USIG YTD mountain iShares Broad USD Investment Grade Corp Bond ETF year to date Investment-grade corporate credit is rated AAA through BBB- by Standard & Poor’s, while Moody’s rates it Aaa through Baa3. Corporates positioned to ‘ride this out’ Both bonds and stocks have been rocked by volatility since the start of the Iran war on Feb. 28. The jump in energy prices and concerns about sticky inflation pushed bond yields higher, but most investment-grade companies entered the period with low near-term refinancing needs, debt that’s locked in at prior lower rates and strong interest coverage ratios, he said. “That’s why spreads have widened only modestly, even as yields rose,” he added. “In our view, IG corporates are better positioned to ‘ride this out’ than both equities and lower quality credit, where margins and refinancing risks are much more sensitive to inflation shocks. Meanwhile, Alvarado is watching private credit closely for any contagion risks, but he said the exposure of investment grade bonds appears limited. Still, he doesn’t expect the volatility to let up anytime soon, which means investors shouldn’t expect a straight line lower in yields anytime soon. That’s constructive for income investors, since they can earn more upfront and get a larger cushion against modest rate moves, Alvarado said. There is also the potential for price gains if interest rates eventually fall, he added. “This opportunity likely doesn’t disappear overnight — but patience and a long-term horizon will be important,” he said. Due to that continued volatility, investors should diversify and ladder exposures, he added. Laddering bonds involves buying multiple issues with different maturity dates and then reinvesting proceeds from maturing bonds. This strategy allows investors to smooth the impact of interest rate fluctuations over time. Standout sectors Security selection matters, Alvarado said. One area of opportunity he sees is in telecommunications. “Investors still need their phone and need their internet, and they’re going to keep on paying their internet provider,” he said. “No matter what inflation, you still need your cell phone. Nobody’s going to give that up.” He also likes financials, specifically large banks and insurance companies, because they are generally well capitalized and benefit from higher rates. They also have relatively attractive spreads, he said. Lastly, select utilities and infrastructure-like issuers can also be compelling, Alvarado noted. He looks at those whose regulatory frameworks support predictable cash flows, as well as an ancillary business that will benefit from the hyperscalers’ capital expenditures on artificial-intelligence related themes.