With expectations that interest rates won’t jump up any time soon, higher quality corporate debt and related bond exchange traded funds are beginning to outperform speculative-grade securities.
The iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) is up 1.0% over the past month and up 4.1% year-to-date. Meanwhile, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) rose 0.4% over the past month and is up 2.9% year-to-date. [A Revival in Corporate Bonds, ETFs]
The majority of gains is coming out of later-dated securities as global investors pile into new long-term bond issuance in recent weeks, Financial Times Reports.
Investors are beginning to ease concerns on duration exposure – the measure of a bond fund’s sensitivity to changes in interest rates, especially as yields on benchmark 10-year Treasuries fell about 30 basis points so far this year.
For example, the Vanguard Long-Term Corporate Bond ETF (NYSEArca: VCLT) is up 8.4% and SPDR Barclays Long Term Corporate Bond ETF (NYSEArca: LWC) increased 8.9% year-to-date.
VCLT has an average duration of 13.5 years and a 4.61% 30-day SEC yield. LWC shows a 13.62 year duration with a 4.55% 30-day SEC yield. In comparison, LQD comes with a 7.7 year duration and a 3.18% 30-day SEC yield.