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.
[related_stories]SCPB “has been trading along a key ascending trendline, and the bulls have propped up the price on each attempted pullback for most of 2016. Given the proximity of the support, active traders will likely look to set their stop-loss orders below the trendline or the 50-day moving average, which are both trading near $30.71,” according to Investopedia.
At a time when investors are thirsty for safe, income-generating assets, it is not surprising that investment-grade corporate bond exchange traded funds are adding assets at a rapid rate this year. Yields on 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.
Related: U.S. Corporate Bond ETFs Among Few Attractive Investment-Grade Options Left
SCPB looks “to provide investment results that, before fees and expenses, correspond to the price and yield performance of the Barclays U.S. 1-3 Year Corporate Bond Index,” adds Investopedia.
SPDR Barclays Short Term Corporate Bond ETF
