Fixed income investors de-risked during the month of November with junk bonds seeing heavy sell-offs, possibly prompted by the introduction of the new COVID-19 variant Omicron.

Last year, when the pandemic racked the bond markets, investors also dumped risky debt with the fear that debtors would not be able to repay their financial obligations. That’s when the U.S. Federal Reserve decided to step in and shore up the bond markets, buying up debt including bond-focused exchange traded funds (ETFs).

It seems like November brought a repeat of that sell-off over a year ago. A subsequent flight to quality took place as investors sought safe havens amid the uncertainty surrounding Omicron.

“US junk bonds fell in November by the most in more than a year on fears the spread of the Omicron coronavirus variant will hinder the ability of low-rated companies to repay their debts,” a Financial Times article reports. “A high-yield bond index compiled by Ice Data Services dropped just over 1 per cent in November, marking only the second month this year in which the gauge has posted a negative total return and its worst showing since September last year.”

This certainly puts fixed income investors in a bind, especially those searching for more yield. While this could push yields higher to attract more purchasers, the added risk of the Omicron variant could sour the taste for high-yield bonds.

A Corporate Bond Option

A flight to quality could also translate to bond investing. Investors looking for yield, but want to stick with less risky investment-grade debt can opt for corporate bonds via ETFs like the Vanguard Total Corporate Bond ETF ETF Shares (VTC).

VTC seeks to track the performance of a broad, market-weighted corporate bond index. VTC 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. The fund comes with a low expense ratio of 0.05%.

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.