Getting high income paired with high credit quality is possible when fixed income investors give the Vanguard Long-Term Bond Index Fund ETF Shares (BLV) a closer look.

Fixed income investors are already in tenuous times with continuous inflation threats morphing from transitory to possibly longer. Moreover, a relatively low interest rate environment isn’t offering many yield options, and in order to extract that extra yield, investors may be forced to look at high-risk assets.

A recent Bank of America survey noted that global fund managers aren’t too keen on the current market environment either. In a recent MarketWatch article, they noted that growth expectations have soured as of late.

“The chief reasons are inflation worries and slowing China growth that have led to an exodus out of bonds and into cash, where levels leapt to a 12-month high,” the MarketWatch article said.

In the meantime, investors who do stay in bonds aren’t confined to sticking with safe haven Treasury notes. While the common refrain in the capital markets is “no risk, no reward,” BLV offers investors relatively low risk and high potential reward.

With a 2.63% 30-day SEC yield and a 2.7% yield to maturity, BLV offers investors a full percentage point higher than benchmark 10-year Treasury notes. The ETF also offers a low 0.05% expense ratio that falls almost 50 basis points lower than the 0.53% category average.

blv ytd

Going Long on Bonds

With an average debt duration of 16 years in its holdings, BLV seeks to track the performance of the Bloomberg U.S. Long Government/Credit Float Adjusted Index. This index includes all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities of greater than 10 years and are publicly issued.

As such, BLV can draw from a variety of options when it comes to bond investments. As mentioned, the common denominator is that the fund sticks to higher duration with debt holdings that exceed a decade.

Product summary per the Vanguard website:

  • Seeks to track the performance of the Bloomberg U.S. Long Government/Credit Float Adjusted Index.
  • Exchange-traded share class.
  • Passively managed using index sampling.
  • Diversified exposure to the long-term, investment-grade U.S. bond market.
  • Provides high current income with high credit quality.

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