Quantitative trading has made its mark in equities, but now mathematically-based strategies are ready to descend upon the corporate bond market.

The early image of a Wall Street trader was someone with nerves of steel who had an uncanny ability to determine where an asset was heading. Now, intuition is being swapped out for computers and mathematical wizards who can crunch data in order to make a trading decision.

That same strategy is ready to take on the corporate bond market, especially given its vast size.

“The global corporate bond market stands at over $40tn, but is virtually untouched by the computer-powered ‘quantitative’ investment revolution that has reshaped the stock market in recent decades. Some so-called quants are giddy about the opportunities,” a Financial Times article says.

With a future forecast of rates turning higher as inflation runs hotter, Wall Street firms are looking for fresh ways to approach the new market landscape. Quantitative strategies are one such way.

“We are at the end of a 40-year bond bull market, and we are going to have to navigate a bear market at some point in the future,” says Dwight Scott, global head of Blackstone’s credit investing arm. “By taking a more systematic approach to risk in fixed income you can outperform even if you’re facing an environment that isn’t as benign as it has been through my entire career.”

Quants Are Ready to Descend Upon the Corporate Bond Market 1

A Corporate Bond ETF to Consider

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Exchange traded fund (ETF) investors don’t have to be quantitative wizards in order to participate in the corporate bond market. One ETF to get broad-based exposure to corporate bonds is the Vanguard Total Corporate Bond ETF ETF Shares (VTC).

As for VTC, the fund seeks to track the performance of a broad, market-weighted corporate bond index. The fund is a fund of funds, and 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:

  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.