Large Investors Dipping Their Toes Back in the Bond Markets Again

The bond markets are looking attractive enough to lure back big investors, according to a recent Financial Times article. A notable tidbit is that bond allocation is dominating their portfolios for the first time in over a a decade.

“Big investors are wading back into the bond market after this year’s historic sell-off, with fund managers favouring debt relative to other asset classes for the first time since the wake of the 2008 financial crisis,” the article said.

While bond prices have obviously been depressed amid the U.S. Federal Reserve’s rate hiking measures to keep in inflation in check, the result has been attractive yields. As such, investors have been getting yield at attractive prices, putting bonds at the top of their portfolio allocations.

“Investors are overweight bonds relative to other asset classes in their portfolios for the first time since 2009, according to the December edition of Bank of America’s monthly survey of fund managers who collectively oversee more than $800bn of assets,” the article added.

2 Options to Get Back Into Bonds

Investors looking to get broad-based bond exposure in the new year can opt for the Vanguard Total Bond Market Index Fund ETF Shares (BND) as opposed to selecting individual bonds in a vast debt market. BND seeks the performance of the Bloomberg U.S. Aggregate Float Adjusted Index, giving fixed income investors all-encompassing exposure to a variety of bonds.

The 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. It’s an ideal option for bond investors who want to stay within the confines of U.S. debt.

For additional diversification that could also add additional income, there’s also an international bond option. Investors considering this level of exposure may want to take a look at the Vanguard Total International Bond Index Fund ETF Shares (BNDX).

BNDX seeks to track the performance of a benchmark index that measures the investment return of non-U.S. dollar-denominated investment-grade bonds. As mentioned, international bonds can provide a diversification tool for fixed income investors looking to supplement their current core portfolio that consists mainly of U.S. debt.

The ETF employs an indexing investment approach designed to track the performance of the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged), which provides a broad-based measure of the global, investment-grade, fixed-rate debt markets. BNDX comes with a low expense ratio of 0.07% while the aforementioned BND comes with an even lower expense ratio of 0.03%.

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