Corporate bonds continue to garner interest as investors may be locking in current yields now before eventual rate cuts take place. In the meantime, it’s an ideal time to consider corporate bond funds, especially given the attractive yields.
“Demand for the asset class has been extremely robust,” the Financial Times mentioned. “Excluding a blip earlier this month, there have been net inflows to credit funds for more than 30 weeks rolling, as investors of all stripes rush to get their hands on the juicy yields on offer in the era of higher-for-longer benchmark interest rates.”
It’s not just the riskiest corners of the corporate bond market that are offering high yields, but also companies with solid fundamentals. Furthermore, the high interest rate environment doesn’t seem to be affecting the bottom line in terms of debt servicing as evidenced by higher corporate profits.
“Even solid companies are issuing debt with high returns — not great news perhaps for them, but good for investors,” the FT article added. “And on the whole, it does not appear that companies are struggling with their debt burden.”
When it comes to attaining yield via corporate bonds, Vanguard has three options to consider with varying durations. For shorter-termed debt, there’s 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. As of June 20, its 30-day SEC yield stands at 5.27%.
A Long and Intermediate Option
With a 30-day SEC yield of 5.57%, investors can opt for longer-term debt — albeit more rate risk — with 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.
For a median option to balance yield and rate risk, intermediate bond offerings of the corporate variety are 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. It has maturities of between five and 10 years. Its 30-day SEC yield is at 5.35%.
All three funds feature a low expense ratio of 0.04%.
For more news, information, and analysis, visit the Fixed Income Channel.
