The past year was a record year for corporate bond issuance, and now the related exchange traded funds (ETFs) may reflect the popularity of the broader corporate bond sector as investors grab yield where they can find it.
Overall, investment-grade corporate bonds have been a good place to hide and even profit in the past two months. High-quality corporate debt has significantly outperformed equities and corporations have a $668 billion in cash on their balance sheets, up from $580 billion a year earlier. [Fixed Income ETFs: Still a Good Bet?]
The reason for the overall performance of iBoxx $ Investment Grade Corporate Bond Fund (NYSEArca: LQD) may be the rally in Treasury bond markets, says Chadd Bennett for Index Universe reports. As the cost of issuance declines for the Treasury, then it goes down for companies, too. [Corporate Bond ETFs Back in Favor.]
What’s more, despite a bleak outlook for employment, and questions regarding further government stimulus, investors are accepting lower interest rates to lend to corporate America. This is evidenced by an influx of higher-quality names hitting the rotation of iBoxx $ High Yield Corporate Bond Fund (NYSEArca: HYG) from their previous lower-ranking companies.
Remember that income investing does have its perks, such as paying out higher yields, diversification and better liquidity, reports Fav Stocks. Just make sure you know why you are adding a certain fund to your portfolio and what your risk tolerance is, and as always, have a strategy at the ready. [How to Follow Trends.]
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For full disclosure, Tom Lydon’s clients own LQD and JNK.
Tisha Guerrero contributed to this article.
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.