Bond exchange traded funds strengthened on Thursday with yields falling off as initial jobless claims dipped to a new coronavirus pandemic-era low. On Thursday, the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT) was up 0.1%, and the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT) rose 1.1%.
Exchange traded fund investors are throwing money into strategies that help hedge against a rising inflationary market environment. For example, ETF investors poured a combined $1.1 billion into the iShares US Real Estate ETF (IYR) and iShares TIPS Bond ETF (TIP) on Wednesday, according to Bloomberg.Meanwhile, ETF investors yanked $900 million out of the iShares 7-10 Year Treasury Bond ETF (IEF).
International bond exchange traded funds could be in trouble as investors think about cutting exposure to Eurozone debt with the European Central Bank looking to taper its emerging bond-purchasing program.
Getting high yield exposure doesn’t mean fixed income investors have to settle for the riskiest debt when you add a value-added strategy to the mix with ETFs such as the FlexShares High Yield Value-Scored Bond Index Fund (HYGV) .
As we explore the current fixed income market, investors should consider the risks associated with inflation and consider alternative strategies on the loan and credit space.
Getting targeted fixed income exposure can help extract more yield in the current market, which is inherent to both the Global X TargetIncome 5 ETF (TFIV) and the Global X TargetIncome® Plus 2 ETF (TFLT) . Both funds offer investors an alternate income stream that outdoes Treasury yields.
Fixed income investors know credit quality matters, and that’s particularly true with corporate bonds. Corporate debt with investment-grade ratings feature lower yields, but less risk. Those with junk grades sport higher yields to compensate investors for higher risk.
Data confirm corporate borrowers are again taking advantage of favorable interest rates to issue new debt. That could be a sign that investors may want to apply more scrutiny to exchange traded funds providing exposure to corporate bonds.
Investors’ appetite for ETFs is only growing, and that includes a growing interest in bond funds. Invesco offers up three (among many) for consideration. A State Street Global Advisors report noted that “ETFs first gained institutional credibility in the world of equities, but they are now a popular and proven vehicle with which to access the fixed income market.” “Investors have plans to increase ETF use within their larger fixed income portfolios,” the report said.
Short-term bond funds can be great places to park cash. Vanguard has a pair of shorter duration options to consider. Even with the Federal Reserve not looking at rate hikes for another year or so, short-term bond funds still have their place in a portfolio.
As equity-based environmental, social, and governance (ESG) exchange traded funds swelled in popularity in recent years, consistently breaking assets under management records for the category, a common refrain emerged. Advisors have asked: when will fixed income ESG ETFs join the party?
There are times when an investor wants aggregate U.S. bond exposure and other times when targeted duration (short or long) is necessary given the current market environs—whatever the need, Vanguard offers suitable ETFs. In this case, it’s getting U.S. bond exposure that strikes a chord with investors transparency, liquidity, diversification, and cost concerns.
Bank loans and high-yield bonds both offer some of the highest yields in the fixed income market today. Both are worth consideration for those investors who are willing to take additional risks to earn higher yields, but bank loans are starting to look a bit more attractive than high-yield bonds today.