Bond investors who are wary of dipping too far into junk bond territory but want better yield payouts than Treasuries may consider investment-grade corporate bond exchange traded funds.

Currently, credit spreads are falling. Looking at corporate bonds, the diminish spread between government Treasury yields and corporate debt yields reflects investors’ lower perceived risks ahead. The Bank of America Merrill Lynch U.S./Corporate BBB Option-Adjusted Spread, which measures the borrowing costs of credit-worthy corporations, dipped to 2.07 percentage points in late April from 3.03 percentage points on February 11, reports Simon Constable for U.S. News.

“We are getting back to the idea that growth and inflation are reappearing,” Peter Tchir, managing director of macro strategies at Brean Capital, told U.S. News.

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The ongoing low-yield environment and improving economic sentiment has helped push investors toward corporate debt. However, potential investors should be aware that corporate bonds have historically exhibited grater volatility than U.S. Treasuries due to the increased volatility in corporate cash flows and credit risks, along with greater liquidity risks.

Corporate America, though, looks healthy as many companies have strengthened their balance sheets in recent years and accumulated large cash reserves.

Investors seeking exposure to the corporate bonds with investment-grade credit quality can take a look at a number of ETF options.

Investment-grade corporate bond ETFs:

  • iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD)
  • Vanguard Short-Term Corporate Bond Index Fund (NYSEArca: VCSH)
  • iShares 1-3 Year Credit Bond ETF (NYSEArca: CSJ)
  • Vanguard Intermediate Term Corp Bond (NasdaqGM: VCIT)
  • iShares Intermediate Credit Bond ETF (NYSEArca: CIU)
  • SPDR Barclays Short Term Corporate Bond ETF (NYSEArca: SCPB)
  • SPDR Barclays Intermediate Term Corporate Bond ETF (NYSEArca: ITR)
  • Vanguard Long-Term Corporate Bond ETF (NYSEArca: VCLT)
  • iShares 10+ Year Credit Bond ETF (NYSEArca: CLY)
  • PIMCO Investment Grade Corporate Bond Index ETF (NYSEArca: CORP)
  • Fidelity Limited Term Bond ETF (NYSEArca: FLTB)
  • AdvisorShares Newfleet Multi-Sector Income ETF (NYSEArca: MINC)
  • SPDR Barclays Long Term Corporate Bond ETF (NYSEArca: LWC)
  • ProShares Investment Grade-Interest Rate Hedged ETF (BATS: IGHG)
  • FlexShares Ready Access Variable Income Fund (NYSEArca: RAVI)
  • iShares 0-5 Year Investment Grade Corporate Bond ETF (NYSEArca: SLQD)
  • iShares Aaa – A Rated Corporate Fund (NYSEArca: QLTA)
  • PowerShares Fundamental Investment Grade Corprate Bond Portfolio (NYSEArca: PFIG)
  • iShares Interest Rate Hedged Corporate Bond ETF (NYSEArca: LQDH)
  • SPDR Barclays Issuer Scored Corporate Bond ETF (NYSEARca: CBND)
  • Fidelity Corporate Bond ETF (NYSEArca: FCOR)
  • FlexShares Credit‐Scored US Corporate Bond Index Fund (NasdaqGM: SKOR)
  • iShares Interest Rate Hedged 10+ Year Credit Bond ETF (NYSEArca: CLYH)
  • PowerShares LadderRite 0-5 Year Corporate Bond Portfolio (NasdaqGM: LDRI)
  • FlexShares Credit‐Scored US Long Corporate Bond Index Fund (NasdaqGM: LKOR)
  • Deutsche X-trackers Investment Grade Bond – Interest Rate Hedged ETF (NYSEArca: IGIH)

Leveraged/inverse ETFs:

  • ProShares Ultra Investment Grade Corporate ETF (NYSEArca: IGU)
  • ProShares Short Investment Grade Corporate ETF (NYSEArca: IGS)

 

For more news and strategy on the Bond market, visit our Bond category.

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