This Bond ETF Could Be Q4, 2024 Winner | ETF Trends

Despite obvious headwinds in the form of surging Treasury yields, the U.S. corporate bond market has been surprisingly resilient in 2023.

10-year Treasury yields rose 2.87% to 4.84% on Tuesday, signaling all is not right in the bond market. Prior to 10-year yields breaching 4.80%, bond market observers were concerned about the carnage a move to 5% could cause. Those worries are now being amplified. This signals that fixed income investors should remain selective regarding credit quality and duration.

Among exchange traded funds, the Calvert Ultra-Short Investment Grade ETF (CVSB) checks those boxes. It could be ideally suited for the current bond market environment. Likewise, the Calvert ETF could prove advantageous for investors looking to position for better things out of corporate bonds in 2024.

Tailwinds Could Emerge for Bond ETF CVSB

Obviously, fixed income investors focus on interest rates and goings on with the Federal Reserve. When the central bank will move to cut rates is still a murky proposition. But bond investors can take heart in knowing  CVSB is supported by solid fundamentals in the investment-grade corner of the corporate bond market.

So, thinking about where corporate bonds should be going forward,” noted Morningstar’s Preston Caldwell. “Now, we are starting to see some more bankruptcies out there, but the bankruptcies that I’ve seen have been more either in the private markets or among middle market and smaller companies. We’re not seeing a pickup in bankruptcies yet in the public markets.”

The outlook for the actively managed CVSB is further supported by strong credit quality. This point should be embraced in the current climate. Roughly 65% of CVSB’s holdings are rated AAA, AA, or A, implying downgrade and default risk is relatively low across the ETF’s roster.

“As far as the economy goes and thinking about how that impacts not only defaults, but also potentially credit downgrades, we could see some pickup in downgrades as the economy slows over the next couple of quarters,” added Caldwell. “But again, we’re not forecasting a recession. So, I wouldn’t expect to see a huge increase in the number of downgrades.”

Interestingly, CVSB compensates investors, arguably lavishly, for credit risk. As of October 16, the Calvert ETF sported a 30-day SEC yield of 5.83%. That is a rarity among short-duration, investment-grade corporate bond ETFs.

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