Bonds have definitely been having their day in the sun as numerous companies are taking advantage of low rates combined with the Federal Reserve’s support to backstop the bond market during the pandemic. This is also giving rise to coronavirus bonds, which are becoming the rage in the fixed income market.
“Governments, banks, companies and multinational organizations raised $151.5 billion globally by May 31 from selling Covid-19 bonds, or debt whose proceeds are broadly earmarked for work linked to the pandemic, according to research by BNP Paribas,” a Wall Street Journal report said. “Pharmaceutical giant Pfizer Inc., Bank of America Corp. and Bank of China are among those that have tapped investors with such bonds since February, though sometimes even the issuers don’t classify the debt as virus bonds.”
Now, what exactly constitutes a coronavirus bond? That is a mystery in and of itself.
“There aren’t set rules on what constitutes a Covid-19 bond, making it the latest example of investments with broad claims and murky definitions that have drawn large pools of money in recent years,” the WSJ report added. “Some part of the proceeds from the virus bonds are being used to fund the development of vaccines or treatments or to bolster health-care systems and curtail the outbreak. In other cases, the funds may go toward relief efforts, but there is no system in place to track their ultimate use.”
The pandemic also helped spur the popularity of environmental, social, and governance (ESG) investing. Coronavirus bonds were born out of the ESG space, which was already gaining traction ahead of the pandemic.
“These things don’t happen overnight,” said Yo Takatsuki, head of ESG research and active ownership at AXA Investment Managers. “Covid-19 bonds are a very natural progression and development from a lot of the structures we’ve been building in the market over the past decade” for the sustainable-finance industry, he said.
ETF Bond Exposure
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.