Try running this scan. Ask to be shown all bonds rated Baa3/BBB- or better, offering at least 5%. You’ll be returned a list of about 400. Then apply the following filters. Ask what the impact on total-return will be with a 5% inflation-rate, a 25% ordinary-income rate, and a 15% cap-gains rate. Even if you’ve written your formulas so as to create an implied tax-credit for bonds bought at premium to par, very few will remain. If you then throw out those that have to be bought in round-lots, or are pro-rata, or are split-rated with one leg lower than invest-grade, even fewer survive that offer more than a 0% real-rate of return.

But one of them is Telefonica Europe’s 8.25’s of ’30. However, when you pull the Moody’s report, you’ll see that it is “under review for downgrade” and that Fidelity (using its own proprietary metrics) slaps a “Risk Outlier” on the bond. So, yeah, though the YTM (either nominal or tax-and-inflation-adjusted) is modestly attractive at first glance, there’s also enough warning signs (such as the huge supply and its availability as singles) that this isn’t really an invest-grade bond, but something with speculative risks.

So, if the supply of acceptable, invest-grade bonds has dried up, what’s a would-invest-grade bond-investor to do? Wait ‘em out, obviously. Have a good weekend.