Even with an apparently narrower spread over 10-years, LQD still has to deal with the fact the Federal Reserve may curb its purchases of Treasurys and mortgage-backed securities. Combine that with elevated concerns about liquidity in the corporate bond market and investors that previously prized high-grade corporates have run for the exits.
Near-term selling pressure, should it continue, would prove Loeys correct. As it is LQD and the Vanguard Intermediate-Term Corporate Bond Index ETF (NasdaqGS: VCIT) are down an average of 2% in the past month. Long-term investors can still utilize corporate bond investments, like LQD, as part of a diversified fixed-income portfolio, but those investors must be aware of the vulnerabilities of the asset class if these bonds appear overvalued relative to Treasurys.
iShares iBoxx $ Investment Grade Corporate Bond ETF
ETF Trends editorial team contributed to this article. Tom Lydon’s clients own shares of LQD.