Economic data indicates the U.S. economy is on solid footing. But the post-mortem on the 2024 presidential election tells a different story. Voters voted with their wallets, signaling they’d like to see big improvements to their personal economies. Hopefully, those improvements materialize, but the data remains supportive that the economy is sturdy. And that’s one reason corporate bonds have impressed this year. That could spell opportunity with ETFs like the WisdomTree U.S. Corporate Bond Fund (QIG ).
QIG, which follows the WisdomTree U.S. Quality Corporate Bond Index, is flat on the year, but sports a 30-day SEC yield of 4.89%. That robust income stream could keep investors engaged with the fund even if the incoming Trump administration brings with it dramatic economic policy alterations.
Speaking of Policy Changes …
The current environment has been hospitable to investment-grade corporate debt and ETFs such as QIG . That’s because the economy is sound, default rates are low, corporate bonds usually perform well in November and December, and because interest rates are declining.
Things could change in the coming months, potentially disrupting corporate credit. That asset class is famous for favoring predictability and stability. Should dramatic alterations come to fruition, QIG’s quality leaning could be advantageous for investors.
“The future, however, may have just become less certain. Credit likes moderation and stability, and we think the current economic mix, with US GDP growth and inflation at both around 2.5 per cent, while the unemployment rate sits near historic lows at 4.2 per cent, has been a good one for credit. It’s been a major driver of our optimistic spread forecasts this year,” noted Andrew Sheets, head of corporate credit research at Morgan Stanley.
Will Bond Investors Turn Skittish?
There are expectations that President-elect Trump will lean on the Federal Reserve to continue lowering interest rates. That could benefit corporate bonds and QIG. However, looser monetary policy could also compel some lower-rated borrowers to take on new debt. That might make some bond investors skittish, potentially underscoring the benefits of QIG’s status as home to highly rated bonds.
“The ambiguity isn’t necessarily a problem now, but we expect these questions to harden as we get into early next year. And given the likely sweep, the odds for larger changes in policy, especially much looser fiscal policy, have risen significantly. Whatever your average expectation for the US economy over the next 24 months now is, we think the bands around that have widened,” concluded Sheets.
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