Are exchange traded fund (ETF) investors giving a vote of confidence to the U.S. economy by moving their money away from Treasury bonds and back into corporates?

Since mid-March, yields on 10-year Treasury notes have shot up nearly 20%, and corporate bond yields have been falling, reports Murray Coleman for Index Universe.

Earlier this year, investors were moving away from corporate bonds as recession fears took hold. But the perception now is that it could be safe to come out, and slowly the money is returning to corporates.

What now? One expert worries that as Treasury yields rise, their prices may fall much harder than those of investment-grade corporate ETFs.

Since they are not government-backed, corporates pay greater income streams than Treasuries.

Whichever way you decide to go – munis, Treasuries, corporates, a mix – there are dozens of bond ETFs to choose from.

The most popular purely corporate bond ETF is iShares iBoxx $ Investment Grade Corporate Bond (LQD).  For more diversified exposure, Vanguard Total Bond Market (BND) holds 26% in corporate bonds.

Other bond ETFS to consider:

• iShares Lehman Credit Bond Index (CFT), up 2.6% year-to-date
• iShares Lehman 7-10 Year Treasury Index (IEF), up 2.9% year-to-date

There is also a line of fundamentally weighted bond ETFs available issued through Ameristock and PowerShares. Among the funds are:

• Ameristock/Ryan 5 Year Treasury (GKC), up 1.8% year-to-date
• PowerShares 1-30 Laddered Treasury Portfolio (PLW), up 1% year-to-date

Tags: Bond ETFs