China's Plans Put Long-Term Bonds ETFs in Perspective

To stimulate economic growth, China is looking to issue bonds with extra long maturity dates or ultra-long bonds. It’s a reminder to fixed income investors that options exist in ETFs domestically. And they offeri higher yields to lock in at current rates.

“China will issue the equivalent of $139 billion in special ultralong bonds this year, part of plans to boost business activity and achieve its ambitious economic growth target of around 5% for 2024,” confirmed the Wall Street Journal.

The report noted that proceeds from bond sales will go to projects that will help support business sectors focus ing on strategic development. What that specifically entails remains to be seen. But any stimulus will help revitalize its economy. It has been reeling ever since a real estate development crisis started a few years ago.

In the U.S., similar options for long-term debt exposure exist. At current yields, it’s an opportunity to take advantage prior to central bank rate cuts. For the investor looking for government and corporate debt, consider the Vanguard Long-Term Bond ETF (BLV). It seeks to track the performance of the Bloomberg U.S. Long Government/Credit Float Adjusted Index. It includes all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds with maturities of greater than 10 years and are publicly issued. Its 30-day SEC yield is at 5.05% as of March 1.

Government and Corporate Bonds Options

For specific exposure to Treasury notes, there’s the Vanguard Long-Term Treasury ETF (VGLT). It tracks the performance of a market-weighted Treasury index with a long-term dollar-weighted average maturity. That index includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities greater than 10 years. The fund currently has a 30-day SEC yield of 4.48%, also as of March 1.

For added yield, albeit higher credit risk, investors can opt for corporate bonds via the Vanguard Long-Term Corporate Bond ETF (VCLT). Its 30-day SEC yield is at 5.57% as of March 1. The ETF tracks the performance of the Bloomberg U.S. 10+ Year Corporate Bond Index. It includes U.S.-dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities greater than 10 years.

All three funds feature a low expense ratio of just 0.04%. BLV, VGLT, and VCLT can serve as stand-alone products within an ETF portfolio. For strategic exposure, investors can use them as part of a bond laddering option, mixing them with short-term and/or intermediate bond ETF products from Vanguard.

For more news, information, and analysis, visit the Fixed Income Channel.