All eyes in the capital markets continue to be on the U.S. Federal Reserve and how their interest policy strategy will play out for the rest of the year. In the meantime, short-term corporate bonds are an attractive option to mitigate rate risk in the near term and get yield over the long term.
“Over the near term, we could see corporate bond spreads widen further, especially if we go into a deep recession,” said Adam Ditkofsky, portfolio manager and vice president at CIBC Asset Management. “But over a longer horizon, return opportunities in high-quality, short-date corporate bonds look attractive. And these bonds are less sensitive to movements in yields and credit spreads than their longer-dated counterparts.”
For a short-duration option, fixed income investors can opt for the Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH), which seeks to track the performance of a market-weighted corporate bond index with a short-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. 1-5 Year Corporate Bond Index.
This index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities between one and five years. Under normal circumstances, at least 80% of the fund’s assets will be invested in bonds included in the index.
An All-Inclusive Corporate Bond Option
For an all-inclusive option that mixes it up in terms of duration, consider the Vanguard Total Corporate Bond ETF ETF Shares (VTC) as a worthy alternative. Given the current market environment, the fund is still more skewed towards short-term debt, comprising about 38% of the fund.
As for VTC, the fund seeks to track the performance of a broad, market-weighted corporate bond index. The fund is a fund of funds and employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. Corporate Bond Index, which measures the investment-grade, fixed-rate, taxable corporate bond market.
The index includes U.S. dollar-denominated securities that are publicly issued by industrial, utility, and financial issuers. The fund comes with a low expense ratio of 0.05%.
- Performance tied to the Bloomberg Barclays U.S. Corporate Bond Index
- Broad, diversified exposure to the investment-grade U.S. corporate bond market
- A unique ETF of ETF structure
- An intermediate-duration portfolio, with exposure to short-, intermediate-, and long-term maturities
- Current income with high credit quality
For more news, information, and strategy, visit the Fixed Income Channel.