Look to Corporate Bond ETFs in Lower for Longer Rate Environment

Steadily improving growth and an ongoing low-yield environment could support risk appetite for corporate bonds and related exchange traded funds.

While some may be concerned with a slowdown in the global economy, we are still experiencing growth, albeit at a slower pace. In a research note, BlackRock strategists, led by Richard Turnill, argued that the overall growth forecast has softened since June’s Brexit vote but the global recovery should inch higher on better-than-expected, if still sluggish, growth.

“Bottom line: Growth surprises could provide a boost to risk appetite in the months ahead, keeping a 2016 Fed rate increase in play,” BlackRock strategists said. “That could also lead to higher long-term Treasury yields and a steeper yield curve. We prefer credit over duration.”

“We generally prefer investment-grade bonds. Yields offer compensation for the risks entailed, such as rising corporate leverage,” the strategists added.

Moreover, the Bank of Japan said on Wednesday it will freeze the 10-year government bond yield near zero and keep short-term rates negative while the Federal Reserve also pushed back expectations for rate hikes next year and over the long run.