The bond market in the U.S. has been heading downward for most of the year, but the situation is more dire in other parts of the globe. In South Korea, for example, risk of corporate debt default is causing the government to intervene with purchases of corporate bonds.
“South Korea’s government will expand its corporate bond-buying program among other liquidity supply measures amid growing worries about a credit crunch in bond and short-term money markets,” a CNBC report noted. “The government will double the ceiling of its corporate bond-buying facility run by state-run banks to 16 trillion won ($11 billion), Minister of Economy and Finance Choo Kyung-ho said on Sunday.”
The move by South Korea’s government seems very similar to what the U.S. Federal Reserve did when the pandemic first hit. To shore up the bond market and mitigate the risk of debt defaults, the Fed purchased a number of bonds, including corporate bonds.
“The measure is aimed at easing volatility and concern of tight liquidity in corporate bond and short-term money markets, Choo said after a meeting with top financial officials, including the central bank governor and regulatory chief,” the CNBC report added further.
Back in the U.S., it’s an opportune time to pick up corporate bonds as yields move higher and, consequently, prices lower. Vanguard has three options to choose from when fixed income investors are looking for corporate bond exposure.
3 Flavors for Corporate Bonds
For short duration exposure to limit interest rate risk, there’s the Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH), which seeks to track the performance of a market-weighted corporate bond index with a short-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index.
This index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities between one and five years. Under normal circumstances, at least 80% of the fund’s assets will be invested in bonds included in the index.
Next up is the Vanguard Interim-Term Corporate Bond ETF (VCIT). VCIT seeks to track the performance of a market-weighted corporate bond index with an intermediate-term dollar-weighted average maturity.
The fund employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. 5-10 Year Corporate Bond Index. This index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities between 5 and 10 years.
For the long haul, there’s the Vanguard Long-Term Corporate Bond Index Fund ETF Shares (VCLT). The fund seeks to track the performance of a market-weighted corporate bond index with a long-term dollar-weighted average maturity.
The fund employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. 10+ Year Corporate Bond Index. This index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities greater than ten years. Under normal circumstances, at least 80% of the fund’s assets will be invested in bonds included in the index.
For more news, information, and strategy, visit the Fixed Income Channel.