With yields depressed all around, investors may find that corporate bond exchange traded funds offer some of the best yields around in the investment-grade debt category.
For instance, the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) has a 8.58 year duration and a 2.97% 30-day SEC yield, Vanguard Intermediate-Term Corporate Bond ETF (NYSEArca: VCIT) has a 7.5 year duration and a 2.91% 30-day SEC yield, and SPDR Barclays Intermediate Term Corporate Bond ETF (NYSEArca: ITR) has a 4.45 year duration and a 2.32% 30-day SEC yield.
Bank of America Merrill Lynch credit strategist Hans Mikkelsen pointed out that U.S. corporate bonds make up about 12% of all global investment-grade rated debt, and they also account for 33% of total investment-grade income, reports Justin Lahart for the Wall Street Journal.
Like other fixed-income assets, investment-grade U.S. corporate bonds have declined. However, corporate bond yields remain much more attractive. For instance, interest rates on 7-to-10 year bonds of high-quality U.S. companies are 3.14%, compared to 3.92% a year ago. In contrast, the yields on benchmark 10-year Treasury notes were at 1.38% after touching a record low of 1.321% on Wednesday.
Related: Record Low Yields Help Treasury ETFs Maintain Momentum
Consequently, the relative attractiveness of U.S. corporate debt has attracted billions of investor cash from all over the world.
[related_stories]While the Federal Reserve has stopped implementing accommodative measures, global central banks, like the European Central Bank and the Bank of Japan, have expanded their quantitative easing programs, pushing yields on their government debt into the negatives, which made U.S. bonds a relative bargain.
Related: ECB Buying Spree Helps Lift U.S. Corporate Bond ETFs
The yield on 10-year Japanese government bonds fell to a record low of negative -0.275% Wednesday, and yields on Japan’s 20-year government bonds fell below zero for the first time ever.
With expanded QE measures from global central banks and potentially more to come in a post-Brexit environment, foreign investors may continue to dive into higher yielding U.S. assets, like investment-grade corporate bonds.
For more information on the fixed-income market, visit our bond ETFs category.
iShares iBoxx $ Investment Grade Corporate Bond ETF