The Evergrande crisis in China certainly made headlines in the capital markets news cycle this year, but now bond investors are betting on a comeback for the troubled real estate developer.
It appears that institutional money is betting that the Chinese company can right the ship in 2022. The real estate developer was in default of its debt obligations, putting its bond holders in jeopardy of non-payment.
That said, Evergrande is ready to put its past behind it, and some bond investors agree. The company’s bonds pose a value proposition for investors to purchase on the cheap in hopes that they turn around.
“Some money managers purchased bonds of China Evergrande Group in recent weeks as the property developer toppled into default and prices hit record lows,” a Wall Street Journal article says.
“Fund managers are betting creditors will recover far more than the debt’s current prices suggest, despite the likelihood of a complex restructuring,” the article adds. “The real-estate company has $20 billion of international bonds outstanding, making it one of the world’s largest distressed-debt investments at the same time low interest rates have investors looking for ways to boost returns.”
Extracting Yield Through Longer Duration
Fixed income investors don’t have to opt for the riskiest debt when looking to extract more yield. They can stick with safe haven Treasury notes that have extended durations that span 20 or 30 years in their maturity dates.
One such ETF that focuses on long duration is the Vanguard Extended Duration Treasury Index Fund ETF Shares (EDV). Furthermore, it features a low expense ratio of 0.07%.
Per the fund description, EDV seeks to track the performance of an index of extended-duration zero-coupon U.S. Treasury securities. The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index.
This index includes zero-coupon U.S. Treasury securities (Treasury STRIPS) that are backed by the full faith and credit of the U.S. government, with maturities ranging from 20 to 30 years. The fund invests by sampling the index. At least 80% of its assets will be invested in U.S. Treasury securities held in the index.
Highlights of EDV:
- Seeks to track the performance of the Bloomberg U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index.
- Is passively managed using index sampling.
- Provides current income with high credit quality.
For more news, information, and strategy, visit the Fixed Income Channel.