Signs of life are appearing in the corporate bond markets, which have followed stocks downward amid inflation fears. Corporate bonds churned out a positive month, giving potential investors reasons to dive back into riskier assets again.
“In May, as traders bid up bond prices, debt tracked by the Bloomberg U.S. corporate-bond index handed investors a roughly 0.7% return for the month, counting price changes and interest payments,” a Wall Street Journal report said. “That was the first time in 10 months that holding corporate bonds kept investors in positive territory.”
In the current market environment, a short duration is a prime option given the risk of rising interest rates. Depending on economic data, the U.S. Federal Reserve could get even more hawkish as inflation wears on.
That said, investors may want to shorten the duration in corporate bonds using a fund like 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.
A Broad Corporate Bond Option
Investors who don’t need targeted exposure to short-duration bonds can go for a more broad option. That’s available via the Vanguard Total Corporate Bond ETF ETF Shares (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 0.04%.
VTC offers:
- Performance tied to the Bloomberg 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.