In late October, the Federal Reserve delivered its second interest rate cut of 2025. Chairman Powell cast doubt on whether another reduction is coming in December. But it appears the path of least resistance over the near-term for Treasury yields is lower.
Declining yields on lower risk bonds place an emphasis on generating income in other corners of the bond market while mitigating risk. Some ETFs are cut out for this environment with the Neuberger Berman Flexible Credit Income ETF (NBFC ) standing as an example. NBFC provides exposure to junk and high-quality corporate bonds. And it’s not highly dependent on longer-dated fare, which could be a positive over the near term.
“Be aware, though, that while long-term bonds seem more attractive, their yields may have already decreased significantly in anticipation of lower prevailing rates, so you might not see much more of a price increase,” according to Bankrate.
NBFC Built for These Times
NBFC’s corporate bond exposure, particularly because it’s mixed and overseen by active managers, could be just what the fixed income doctor ordered as Treasury yields move lower.
“Investors may decide to shift more of their money to higher-yield corporate bonds. While this higher income can be appealing, corporate bonds also come with more credit risk associated with the issuer. It’s essential to balance your bond portfolio exposure between stable government bonds and corporate bonds,” added Bankrate.
NBFC delivers the goods in the income department, as highlighted by a yield of 7.96% as of October 31. That’s generated without taking excessive credit risk. Yes, the ETF holds high-yield corporates. But it’s not heavily dependent on rated bonds rated CCC to bolster its income stream. That also implies NBFC avoids some of the liquidity concerns often attached to some lowly rated corporate debt.
The ETF’s methodology is also a sign of a focus on stability. That’s something advisors and investors prize even when the Fed is in easing mode. Plus, NBFC offers a level of diversification not found with many competing ETFs.
“The importance of diversification in a portfolio can’t be emphasized enough. Some bonds may be more attractive in times of lower interest rates, but consider the role that bonds play within your portfolio overall: that is, they reduce the volatility of a portfolio otherwise tilted heavily toward stocks and other higher-risk assets,” concluded Bankrate.
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