Due to their near-zero durations, the rate-hedged bond funds should show little to no sensitivity to changes in interest rates. These types of hedged-bond ETFs could provide suitable exposure to the fixed-income market in a rising interest environment ahead.

For instance, the iShares Interest Rate Hedged Corporate Bond ETF (NYSEArca: LQDH) holds short positions in interest rate swaps, which provides the rate-hedged ETF with a -0.01 effective duration, whereas the popular LQD has a 7.91 year duration. Additionally, the rate-hedging strategy does not sacrifice too much in yields as LQDH shows a 3.06% 30-day SEC yield, compared to LQD’s 3.54% 30-day SEC yield. The strategy should help an interest-rate-hedged ETF outperform its non-hedged options if rates continue to rise.

“The hunt for yield by foreign buyers also helped support a surge in U.S. debt offerings. U.S. corporations sold a record $1.3 trillion in investment-grade debt last year, and are on track for another record this year with $451 billion year to date, according to Informa Global Markets,” reports CNBC.

For more information on corporate debt, visit our corporate bonds category.

Tom Lydon’s clients own shares of LQD.