The Short End of it With Corporate Bond ETFs

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. Of course, interest rate risk is still a concern with some corporate bond ETFs, so on that note, investors worried about rate risk can evaluate short-term investment-grade corporate bond funds.

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.

Related: If Rates Rise, Look to These Junk Bond ETFs

The SPDR Barclays Short Term Corporate Bond ETF (NYSEArca: SCPB) has a 1.87 year duration and a 1.57% 30-day SEC yield. By moving down the yield curve with shorter duration bond funds, fixed-income investors can reduce any negative response to higher interest rates.

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.