If the bond markets are telling us anything, it’s that investors are looking to take on more risk…but whoa, not too much risk. Lower-rated investment-grade companies are slowly replacing their higher-rated counterparts in popularity and exchange traded funds (ETFs) that hold these bonds can give you diversified access.
A fundamental shift is taking place in corporate America and overseas as companies with low investment-grade ratings are replacing their higher-rated rivals as the most important driver of the bond markets this year. [Interest Rate Impact on Bond and Equity ETFs.]
Bond analysts estimate that globally, 65% of the corporate investment-grade bonds (excluding financials) that have come to market so far this year were rated in the BBB band, Radi Kasawneh for The Wall Street Journal reports. This is the lowest rating for an investment grade bond; after that, it’s rated “junk.” [What ETF Investors Want Now.]
The junk bond market is also robust right now.
John Detrixhe, Pierre Paulden and Craig Trudell for BusinessWeek report that Ford Motor Co.’s (NYSE: F) finance arm sold $1.75 billion of five-year debt, taking advantage of investor demand for high-yield, high-risk bonds. Junk bond issuance last month hit $35.3 billion, eclipsing the previous record of $31.2 billion set in November 2006.
For more stories about bond ETFs, visit our bond ETF category.
- SPDR Barclays Capital High Yield (NYSEArca: JNK)
- iShares iBoxx $ Investment Grade Corp Bond ETF (NYSEArca: LQD) has about 11% of bonds rated BBB
- iShares iBoxx $ High Yield Corporate Bond (NYSEArca: HYG)
For full disclosure, Tom Lydon’s clients own shares of LQD and JNK.