The overall bond market has been feeling the downward pressure of rising interest rates, but corporate bonds might be feeling an extra pinch. Nonetheless, investors seeking yield still offer an attractive option despite the dreary environment for bonds.
With rising interest rates, corporations could see their profits suffer, translating to more weakness in the corporate bond market through the rest of 2022.
“Vanguard Group Inc. expects the U.S. corporate-bond market to come under increased pressure this year as rising interest rates rattle investors and threaten businesses’ profits,” a Financial Advisor article noted.
Nonetheless, rising yields are offering attractive yields for fixed income investors. Vanguard has a pair of options for broad corporate bond exposure or short duration to mitigate the effects of rising interest rates.
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 follow 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 publicly issued by industrial, utility, and financial issuers. The fund comes with a low expense ratio of 0.05%.
VTC offers:
- 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 the ETF structure
- An intermediate-duration portfolio with exposure to short-, intermediate-, and long-term maturities
- Current income with high credit quality
A Short Duration Option
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 follow 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.
For more news, information, and strategy, visit the Fixed Income Channel.