Former U.S. Federal Reserve chairman Alan Greenspan made “irrational exuberance” a notable phrase ahead of the financial crisis in 2008, and now the word “exuberance” appears to be applicable to junk bonds. This is according to a European Central Bank (ECB) report that lumps in junk bonds with other assets seen as possibly over-inflating when it comes to valuations.
Master limited partnerships have been popular alternative yield-generating assets among income-minded investors in today’s low-yield environment. However, when investing in MLP-related exchange traded products, investors should understand the difference between an exchange traded fund and an exchange traded note, as the two investment vehicles are not the same.
ESG investing is sweeping across the investment landscape and making a home in every corner of every market. With over 1,000 funds related to ESG available in the fixed income space alone, it’s important for advisors to be up to speed on their investment options within fixed income, which saw inflows of $12.9 billion in 2020, a threefold increase over the previous year, reports State Street Global Advisors in a white paper .
Global food prices are on the move higher, underscoring inflationary pressures that are ongoing in today’s market environment, but bond investors can protect themselves with the right ETF in place.
Even while the effects of the ongoing pandemic are slowly dissipating, the risk of default is always apparent when investing in corporate debt issues, which can be addressed with a pair of FlexShares ETFs. Focusing on quality debt is available in the convenience of an ETF wrapper with funds like the FlexShares Credit-Scored US Long Corporate Bond Index Fund (LKOR) .
The corporate bond market can thank banks for the rising demand in corporate debt as banks continue to load the proverbial boat with more debt to balance their cash reserves. Big players like Goldman Sachs and Bank of America have been issuing billions in bonds after strong third quarter results.
Yields on corporate bonds, both investment-grade and junk, are low. So are default rates, and credit spreads are historically tight. Put all that together, and it might be easy for an investor to assume that there’s not much value to be had with corporate debt.
The iShares Core U.S. Aggregate Bond ETF ( AGG A+ ) isn’t the end-all-be-all for getting core bond exposure when there are options from FlexShares to consider. One such fund that can serve as an AGG alternative is the FlexShares Core Select Bond Fund ( BNDC ) .
Short-duration notes might be an ideal place to park cash in the interim, and long duration can offer higher yields, but one fund seeing strong inflows is a middle-of-the-road option: the Vanguard Intermediate-Term Treasury Index Fund ETF Shares ( VGIT A ).
Rising inflation and volatility are making the bond markets a difficult asset class to navigate right now, but there is a solution from Vanguard that can help stymie their effects. Rising consumer prices are already top priority on the Federal Reserve’s watch list.
Treasury yields have been moving higher, making fixed income investors wonder whether high yield is a prime option, but it can be with ETFs like the FlexShares High Yield Value-Scored Bond Index Fund (HYGV) . As yields rise and spreads tighten, bond investors are pondering whether high yield is worth the risk in order to extract that extra dose of income.
With bond yields low and credit spreads tight, fixed income investors are facing myriad challenges this year. They’re finding some relief with fallen angel bonds. The VanEck Vectors Fallen Angel High Yield Bond ETF (NASDAQ: ANGL) is the dominant exchange traded fund for accessing this corner of the high-yield corporate bond market — a status that’s being solidified this year as bond investors embrace niftier spins on high-yield bonds.
The Evergrande crisis in China could spark a move into safer haven U.S. debt after another Chinese developer recently missed its bond payment. This could spur a marked shift from global investors looking at bond opportunities in China following its recovery from the pandemic.
Despite the Federal Reserve looking to raise interest rates in 2022, rates are still relatively low by historical standards, which is causing fixed income investors to look elsewhere for yield. “In this period of virtually non-existent bond yields, the search for income is prompting increased interest in junk bonds, exposing investors to more risk,” a CNBC article said. “Meanwhile, stock investors are concerned about the impact of market volatility on their portfolios.”
