Looking ahead, corporate bond ETFs, like other bond funds, are subject to inflation and interest-rate risk – the underlying bond will depreciate in value as inflation expectations and interest rates rise. Strauts notes that with a 7.8 year average duration, LQD could experience an 8% loss if interest rates rise 1%.
Nevertheless, glancing at the spreads, corporate debt is not overvalued. The BofA Merrill Lynch US Corporate BBB Spread Index, which calculates the difference in yield between AAA U.S. Treasuries and a BBB rated corporate bond, has a 1.94% spread, compared to the average 2.13% since 1997.
Alternatively, other similar ETF products include:
- iShares Barclays Credit Bond (NYSEArca: CFT): 2.37% 30-day SEC yield.
- Vanguard Intermediate-Term Corporate Bond Index ETF (NYSEArca: VCIT): 2.57% 30-day SEC yield.
- PIMCO Investment Grade Corporate Bond Index ETF (NYSEArca: CORP): 2.62% 30-day SEC yield.
For more information on corporate debt, visit our corporate bonds category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own LQD.