Rate cuts can produce a macroeconomic environment conducive to corporate bonds, allowing companies to borrow more money at lower rates. This could see more investors move into corporate bonds for greater yield opportunities.
As the Fed starts to ease monetary policy, fixed income investors could be seeking other avenues for yield that safe haven government debt may not offer them. As such, corporate bonds could see interest from investors if they’re willing to accept the higher credit risk.
In other parts of the globe, more millennials are ditching money market accounts. They’re taking their savings to invest in corporate bonds. Grip Invest, a high-yield investment platform domiciled in India, is seeing a pronounced move into corporate bonds my millennials. Corporate bond investments by millennials on the platform account for 63% of investors.
“The findings from our latest report reveal a rebalancing of the financial landscape, where corporate bonds have transformed from a niche asset into a mainstream choice for everyday investors. The growing accessibility, expanding risk appetite of millennials, and demand for a digital-first experience have been key drivers of this change,” said Nikhil Aggarwal, founder and group CEO of Grip.
3 Options for Corporate Bonds From Vanguard
Investors looking to shore up their corporate bond exposure as the macroeconomic environment favors this debt can look to funds from Vanguard. In particular, fixed income investors can tailor their exposure to short-term, long-term, and intermediate-term exposure:
- Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH ): Short-term bond funds can help mitigate rate risk, but still attain the higher yields the current market can offer before rate cuts take place. That said, VCSH 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 ): Long-term bonds can offer greater yield opportunities by stepping further out on the yield curve. VCLT 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 ): For a median option to balance yield and rate risk, intermediate bond offerings can offer this median level of exposure. 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.
For more news, information, and analysis, visit the Fixed Income Channel.
