When it comes to the fixed income markets and the Federal Reserve, there’s a whole lot of buying going on. In order to shore up the debt market, the Fed dumped $8.7 billion into exchange-traded funds (ETFs) and bond purchases.
“The vast majority of the money has been invested in exchange-traded funds rather than through direct bond purchases. The amounts are also tiny, compared with the nearly $10 trillion of outstanding corporate debt,” a Barron’s article noted.
“Barron’s reports that almost 60% of the bonds were rated triple-B — the lowest segment of the investment-grade market,” the article added. “Nearly a fifth of the borrowers were companies based outside the U.S., like Toyota, Volkswagen, and Daimler. But the bonds being purchased are issued by their American vehicle-financing arms, which means that U.S. consumers should be the ultimate beneficiaries.”
Speaking more to the individual bond purchases, recent disclosures noted that individual debt purchases also included companies, such as Walmart and AT&T.
“On June 16, the U.S. central bank began purchasing securities of individual issuers as part of a broad index it created to include companies that were eligible for the program,” a Bloomberg article pointed out. “The disclosures, posted Sunday, showed that of the $207 million of purchases made on the first day of buying, about 21% were of debt issued by firms in the consumer non-cyclical sector, while 15% were of consumer cyclical debt and 10% were of technology debt. Issues rated below investment grade comprised 3.6% of the securities acquired.”
Bond ETF Action
Investors looking to get in on the corporate bond action, they can consider the Goldman Sachs Access Investment Grade Corporate Bond ETF (GIGB ). GIGB seeks to provide investment results that closely correspond to the performance of the FTSE Goldman Sachs Investment Grade Corporate Bond Index.
The fund seeks to achieve its investment objective by investing at least 80% of its assets (exclusive of collateral held from securities lending) in securities included in its underlying index. The index is a rules-based index that is designed to measure the performance of investment-grade, corporate bonds denominated in U.S. dollars that meet certain liquidity and fundamental screening criteria.
For a high yield option to squeeze out that extra yield albeit more risk, take a look at the Goldman Sachs Access High Yield Corporate Bond ETF (GHYB ). GHYB seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the FTSE Goldman Sachs High Yield Corporate Bond Index.
The fund seeks to achieve its investment objective by investing at least 80% of its assets (exclusive of collateral held from securities lending) in securities included in its underlying index. The index is a rules-based index that is designed to measure the performance of high yield corporate bonds denominated in U.S. dollars that meet certain liquidity and fundamental screening criteria.
