The iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) and other investment-grade corporate bond exchange traded funds have been popular destinations for income-hungry investors this year. In fact, many foreign investors have been gobbling up U.S. corporate debt.
Higher-quality corporates also offer value.
“It also looks relatively attractive versus high yield. At the beginning of 2016, U.S. high yield spreads were among the widest versus investment grade since the financial crisis. A year later, that ratio is back near post-crisis lows. We see investment grade debt as attractive in the tradeoff between yield and risk,” adds BlackRock.
“U.S. interest rates, though still very low, were more attractive than many others around the world, where central banks pushed more than $12.9 trillion in debt into negative-yielding territory by last summer. Corporate America also issued a record mountain of debt last year, in an effort to lock in low interest rates — and debt payments — before more Fed interest rate increases. Foreigners were ready buyers,” reports CNBC.
Investors, though, do not need to sacrifice yields to diminish rate risk. Alternatively, investors can look to rate-hedged or zero-duration bond ETFs. The group of interest rate-hedged or zero duration ETFs hold long-term bonds but also simultaneously short Treasuries or Treasury futures contracts to hedge against potential losses if interest rates rise.