U.S. Corporate Bond ETFs Supported by ECB Bond Buying Spree

Foreign central banks have enacted aggressive bond purchasing programs that have pushed down yields. As foreign investors seek out better returns, U.S. corporate bonds and related exchange traded funds have benefited from their relatively more attractive yields.

Hans Mikkelson, Bank of America Corp. credit strategist, pointed out that a scarcity of yields in foreign developed markets have caused a fresh wave of investors searching fore returns in the U.S. where investment-grade bonds provide eight times the amount available in places like the equivalent Eurozone markets, reports Tracy Alloway for Bloomberg.

Related: Rising Foreign Demand Could Support Corporate Bond ETFs

Foreign yields are being depressed by stimulus measures employed by global central banks, such as the Bank of Japan and the European Central Bank, which began buying investment-grade corporate bonds as a part of its quantitative easing program to stimulate the Eurozone economy.

“This extreme pricing action in Europe and Japan is, of course, the result of extreme monetary policy accommodation by the ECB and BOJ in response to economic weakness,” Mikkelson told Bloomberg. “No wonder we are seeing big foreign inflows to the U.S. corporate bond market, which is the only place that has yield, size and (relative) liquidity.”


Investment-grade corporate bond ETFs have also become popular plays in 2016. For instance, the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) has attracted $3.7 billion in net inflows year-to-date, according to ETF.com.

Year-to-date, LQD gained 7.0%, Vanguard Intermediate-Term Corporate Bond ETF (NYSEArca: VCIT) rose 6.1% and SPDR Barclays Intermediate Term Corporate Bond ETF (NYSEArca: ITR) advanced 4.4%.