The recent downgrade of U.S. debt may have investors skittish about safe haven Treasuries. To curb these thoughts, one strategy fixed income investors can implement is to diversify their bond exposure. That is exactly what the Neuberger Berman Total Return Bond ETF (NBTR) does.
Mounting sovereign debt fueled credit rating agency Moody’s decision to downgrade U.S. debt. In the eyes of Moody’s, an inflationary environment highlighted by elevated interest rates only exacerbates the situation. It’s difficult to envision the U.S. not paying its debt service costs. But it’s certainly elevating yields and pushing benchmark Treasury notes down in the interim.
One way to counteract falling Treasury prices is to look outside of government debt, such as corporate bonds. While not exactly a safe haven compared to Treasuries, corporate bonds have been fundamentally sound even amid all the market uncertainty. Bank of America market strategist Joe Quinlan noted the “resilient” U.S. private sector. Companies are continuing to push for growth and innovation as technological advances like AI continue to add intrigue to enhancing business operations.
Additionally, as reported by Reuters, the downgrade didn’t upend the corporate bond market. The report stated that corporate bond sales activity experienced moderate softening. It also noted the spread differences between investment-grade corporates and Treasuries were largely unaffected following the announcement of the downgrade.
Given the above, it makes sense to get bond exposure that still mixes in safe haven Treasuries while also adding a dose of corporate bonds. This is where NBTR becomes an ideal option.
Actively Mixing Treasuries & Corporates
A peek into NBTR’s top 15 holdings reveals a mix of Treasuries and corporate bonds. The diversification certainly benefits in attaining higher yields for fixed income investors, resulting in a 30-day SEC yield of 5.41%.
Per the fund’s core features on its product site, its holdings are dynamically adjusted. That gives credence to the active strategy of the fund. The portfolio managers of NBTR can tailor the holdings of the fund to capture upside in corporates, Treasuries, or other fixed income securities across various credit markets. Unlike a passive core bond fund, NBTR can adapt to changing market conditions, allowing for the adjustment of holdings when deemed necessary.
NBTR is heavily diversified, adding over 400 holdings (as of May 8) that include both government and corporate bonds. Having that mix of quality and yield gives investors a healthy balance of adding investment-grade debt issues while still maximizing income. Adding to the income diversification is a mix of mortgage-and asset-backed securities.
For more news, information, and analysis, visit the Invest Beyond Cash Channel.
