An ETF to Consider Amid Record Corporate Bonds Sales

Record issuance in bonds to start 2024 is now showing up in the sales numbers. In the case of corporate bonds, record issuance in January was met with record sales in February as the scramble to lock in yields is spurring bond buyers to act.

“Blue-chip companies in the US sold a record $172 billion of bonds in February after falling yields spurred investors to buy debt and pushed companies to take advantage of relatively cheaper borrowing costs,” Bloomberg confirmed.

Issuing debt now and refinancing later in anticipation of interest rate cuts has been a prime reason for companies to issue new debt to start the year. The need to provide funding for mergers and acquisitions has also been a prime catalyst for bond sales.

“The sales topped the prior record for February of $150.9 billion, set last year,” the Bloomberg report added. “Issuance for the entire year has surpassed $361 billion, also a record. The sales come on the heels of the busiest week in nearly two years, driven in part by a deluge of bonds sold to fund mergers and acquisitions. And more bond sales are likely on the way.”

Amid record issuance, investors can take advantage of the yields offered by corporate debt now before the central bank eventually starts loosening monetary policy. For risk-averse investors unsure about the additional credit risk associated with corporate debt, getting quality exposure can help reduce anxiety. Rather than pore over individual bonds and hand-pick the holdings themselves, ETFs can offer easier ingress to exposure. ETFs can essentially do all the heavy lifting by constructing an ideal corporate bond portfolio.

One ETF for Broad Corporate Bonds Exposure

To strike a balance between yield and credit quality, fixed income investors can consider the Vanguard Total Corporate Bond ETF ETF Shares (VTC). The fund seeks to track the performance of the Bloomberg 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%, and as of February 29, a 30-day SEC yield of 3.84%.

Summarily, VTC offers:

  1. Performance tied to the Bloomberg U.S. Corporate Bond Index
  2. Broad, diversified exposure to the investment-grade U.S. corporate bond market
  3. A unique ETF-of-ETFs structure
  4. An intermediate-duration portfolio with exposure to short-, intermediate-, and long-term maturities
  5. Current income with high credit quality

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