Over the past year, bonds and their exchange traded funds (ETFs) have drawn much attention which have sent the yields on these fixed income investment tools down.
According to Randall W. Forsyth of Barron’s, the rally has been specifically seen in the credit markets, in particular corporate securities as opposed to lower-risk Treasury securities.
One reason that bond ETFs are remaining attractive it because the credit markets are giving investors a better return than the near-zero return earned in money-market and cash accounts. Additionally, with the ever-growing number of options available, bond ETFs enable investors to make both bearish and bullish plays on the market.
If the economy improves, corporate credit will benefit. If this happens, Treasury yields are apt to rise. Conversely, if the economy falls short of the bulls’ expectations, Treasury yields may fall but corporate spreads could widen and hurt corporate bond returns. Have a strategy in order to protect yourself.
The iShares iBoxx $ Investment Grade Corporate Bond (NYSEArca: LQD) is up 9.3% year-to-date and has a yield of 5.33%.
The SPDR Barclays Capital High Yield Bond Fund (NYSEArca: JNK) is up 31.3% year-to-date with a yield of 12.9%.
Even municipal bonds have seen a nice uptrend. Take a look at the iShares S&P National Municipal BondETF (NYSEArca: MUB) which is up 8.7% year-to-date with a yield of 3.63%. Additionally, State Street Global Advisors recently launched the SDPR Standard & Poor’s VRDO Municipal Bond ETF (NYSEArca: VRD),which is designed to provide investors with access to muni variable-rate demand obligations.
For more stories on bond ETFs, visit our bond ETF category.
Kevin Grewal contributed to this article.
For full disclosure, Tom Lydon’s clients own shares of LQD.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.