High-quality, investment-grade fixed-income assets have garnered a lot of attention as the markets lose their footing. Investors seeking to branch out of the Treasuries market may now consider the ProShares‘ new covered bond ETF with an emphasis on AAA-rated securities.
According to a press release, the ProShares USD Covered Bond (NYSEArca: COBO) tries to reflect the performance of the BNP Paribas Diversified USD Covered Bond Index, which tracks covered bonds, a form of collateralized corporate debt issued by non-U.S. financial institutions and denominated in the U.S. dollar. Each covered bond is rated AAA by at least one rating agency. COBO has an expense ratio of 0.35%.
Covered bonds are different from regular corporate bonds in that covered bondholders have a senior unsecured claim against the issuer in the event of a default and are also given preferential claim to segregated, actively maintained “cover pool” of assets.
Triple-A covered bonds currently offer higher yields than U.S. Treasury and AAA-rated U.S. corporate bonds of similar duration.
“Many investors are interested in high credit quality bonds, but the supply of AAA-rated corporate debt in the U.S. is very limited,” Michael L. Sapir, Chairman and CEO of ProShare Advisors LLC, said in the press release. “COBO, a first-of-its-kind ETF, fills the gap by accessing the highest-rated segment of the $3 trillion, 240-year-old covered bond market.”
For more information on corporate bonds, visit our corporate bonds category.
Max Chen 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.