Rate cut expectations pushed more investors into investment-grade corporate bonds the past quarter, giving the asset class their best performance in nearly a year.
“US high-grade corporate bonds logged their first quarterly gain this year in the past three months, returning 5.8% for its best performance since the final stanza of 2023, according to a Bloomberg index,” reported Bloomberg.
As the report noted, investment-grade bonds dipped slightly as the Fed pushed out its rate cuts further into the year. Nonetheless, bond issuance continued with demand ready to meet fresh supply.
“As investors saw the start of the Federal Reserve’s rate-cut cycle pushed out to September, investment-grade notes logged slight quarterly losses despite strong demand of new bonds,” the report added. “Year-to-date, orders have exceeded supply by 3.7 times, according to data compiled by Bloomberg. Last month’s rate was 5.4 times despite a global surge of debt issuance.”
Investors looking to get exposure to corporate bonds have a few options from Vanguard. A steepening yield curve means investors can start looking toward the long end of the yield curve for opportunities.
However, with potential volatility ahead, they may also want to strike a balance between attaining yield and tempering rate risk. As such, for a middle-of-the-road solution, an intermediate corporate bond offering is available with the Vanguard Interim-Term Corporate Bond ETF (VCIT ). This 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.
Long- and Short-Term Options
For emboldened fixed income investors willing to take on more rate risk to maximize yield should consider the 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.
If rate risk remains a concern and investors are looking to park cash into an investment vehicle temporarily, short-term bond funds can remain an option. For corporate bond exposure, consider the Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH ). The fund 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.
For more news, information, and analysis, visit the Fixed Income Channel.
