Bonds and related ETFs could be ready for their respective moments. That’s because fears that equity market turbulence could stick around awhile are prompting calls that the Fed should cut interest rates sooner than expected. Bonds aren’t guaranteed to be entirely immune from equity market calamity. But they displayed expected sturdiness on what was a volatile Monday for stocks and investment-grade corporate bonds.
That could be a sign the WisdomTree U.S. Short Term Corporate Bond Fund (QSIG ) is among the fixed income ETFs to evaluate over the near term.
QSIG could be a credible option for income investors. That’s because, as the July jobs report indicates, the U.S. economy could well be cooling. And that could bring with some strain for junk bond issuers. Should that scenario play out, it could make QSIG’s high-quality lineup that much more appealing. Second, signs of a softening economy could compel the Fed to lower interest rates. And that would likely help a variety of bond segments, including investment-grade corporates.
More Good News for Corporate Bond ETF QSIG
The pair of factors may be priced into the bond market. But that doesn’t diminish the case for QSIG. In fact, the fundamental outlook for high-grade corporate debt is attractive.
“Upgrades (led by financial institutions) outpaced downgrades two to one in the second quarter of 2024 as positive rating action momentum continued,” according to S&P Global Ratings. “There were nearly twice as many positive outlook or CreditWatch revisions (61) as negative ones (35). [That’s] a further sign of likely positive rating momentum in the future.”
Additional QSIG Benefit
Another benefit offered by QSIG is the sectors from which the ETF’s issues hail. The roughly 400 issues found in QSIG hail predominantly from the financial services sector. Those include smatterings of consumer cyclical and technology exposure, among others.
Fortunately, the WisdomTree ETF isn’t heavily allocated to some of the sectors and industries that are homes to bonds currently rated investment-grade that are potentially vulnerable to losing that status over the near term.
“We expect investment-grade trends to keep improving going forward — despite our expectations that economic growth may slow while rates remain elevated, as positive outlook revisions are easily outpacing negative ones,” added S&P. “However, improving trends will not be universal. And we expect positive momentum to moderate, particularly among weaker sectors such as chemicals, packaging, and environmental services; metals, mining, and steel; and homebuilders and real estate.”
Nearly 95% of QSIG’s holdings have an A or BBB rating. And the ETF has a 30-day SEC yield of 4.68% and an effective duration of just 2.54 years, according to issuer data.
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