The Evergrande crisis in China hasn’t quite numbed, and a domino effect has been occurring with record bond defaults in the month of December.
That said, investors may want to avoid the riskiest debt in China to stave off the credit risk. Fixed income investors in the U.S. may want to stay invested domestically.
“December is poised to be a record month for Chinese offshore corporate defaults after missed payments by indebted companies including China Evergrande Group and Kaisa Group Holdings Ltd,” a Bloomberg article says. “Chinese firms have defaulted on a record $3.8 billion in offshore bonds so far this month, data compiled by Bloomberg show. The previous monthly high was in January when Chinese borrowers failed to repay $2.7 billion of such notes.”
Getting U.S. Bond Exposure
To mitigate risk with Chinese bond exposure, investors may want to stay in U.S. bonds with exchange traded funds (ETFs) like the Vanguard Total Bond Market Index Fund ETF Shares (BND). BND presents bond investors with an all-encompassing, aggregate solution to getting U.S. bond exposure. It can be an ideal solution for investors seeking to complement their equities exposure.
With its low 0.035% expense ratio, BND seeks the performance of the Bloomberg U.S. Aggregate Float Adjusted Index. This index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.
To extract more yield while taking on a bit more credit risk in U.S. corporate bonds, investors can look at the Vanguard Total Corporate Bond ETF (VTC). Also featuring a low expense ratio at 0.04%, VTC seeks to track the performance of a broad, market-weighted corporate bond index.
The fund is a fund of funds, and it employs an indexing investment approach designed 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 that are publicly issued by industrial, utility, and financial issuers.
- 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 ETFs 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.