There’s still a lot of uncertainty in the bond markets, especially the corporate variety. But with tariff negotiations underway, especially with China, the pause could present investors with an opportune time to snatch up corporate bonds.
In addition to tariffs, first-quarter earnings season could also decide the direction of corporate bonds. Year-to-date earnings thus far have been solid, according to data from FactSet. Certain sectors are seeing better results like healthcare, information technology, and communication services, while others are languishing, such as consumer discretionary and energy sectors. Given the market tumult caused by the tariff tantrum, earnings are relatively stable.
“At this stage of the earnings season, the S&P 500 is reporting solid results for the first quarter,” FactSet mentioned.
Despite the uncertainty in the market environment, some market strategists recommend bond issuance. It’s a simple matter of issue now before potential volatility resumes later.
“Companies should issue bonds now rather than wait because market conditions are relatively stable at present,” said Edward Marrinan, credit strategist at SMBC Nikko Securities. “Conditions could change in coming days with the release of labor market and inflation economic data and the ongoing risk of adverse headlines on trade and tariff policy.”
3 Vanguard Options
Fixed income investors seeking to attain corporate bond exposure have a few options from Vanguard. From short-term bonds to mitigate rate risk to long-term bonds for yield and everything in between, here are three ETFs worth considering:
- Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH ): It seeks to track the performance of a market-weighted corporate bond index with a short-term dollar-weighted average maturity. It employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index.
- Vanguard Long-Term Corporate Bond Index Fund ETF Shares (VCLT ): The fund tracks the performance of the Bloomberg U.S. 10+ Year Corporate Bond Index. This index includes U.S.-dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies with maturities greater than 10 years.
- Vanguard Interim-Term Corporate Bond ETF (VCIT ): If short- or long-term bonds aren’t an ideal solution, investors can opt for a median solution to corporate bond exposure via intermediate bonds. These bonds allow investors strike a balance between yield and rate riskThis fund tracks the Bloomberg U.S. 5-10 Year Corporate Bond Index. That index includes U.S.-dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies.
All three of the aforementioned funds feature a low .03% expense ratio.
For more news, information, and analysis, visit the Fixed Income Channel.
