For the first half of 2022, stocks and bonds were seeing eye to eye amid inflation fears as sell-off pressures pushed both assets downward. With the second quarter well underway, bonds are starting to look like the more attractive option as recession fears mount, according to one market strategist per a Markets Insider article.
With the U.S. Federal Reserve’s aggressive rate hiking to the point where growth could be affected (thus, forcing the economy into a recession), history states that equities are usually preferred over bonds. However, given the current market environment, bonds may be more appealing.
“What’s really different this time, since the peak of the market, rates have doubled,” said strategist Melissa Brown of financial intelligence firm Qontigo. “That is a huge difference and it is running counter to policy solutions that we’ve seen prior bear markets so it makes it tougher to make the case for equities.”
Of course, with rates on the move, this pushes yields higher. It’s one of the reasons fixed income investors could actually prosper in this environment where rising yields could help outpace inflation.
“Bonds are becoming a better alternative to stocks than they’ve been for a long time, in comparison to other bear markets where bond yields have actually come down throughout the course of a bear market,” Brown said.
A Corporate Option for Yield
Fixed income investors looking to ante up on their yield-seeking can consider the Vanguard Total Corporate Bond ETF ETF Shares (VTC). The fund comes with a 30-day SEC yield of 2.77% as of July 7.
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 Barclays 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 0.04%.
- Seeks to track the performance of the Bloomberg U.S. Corporate Bond Index.
- Broad, diversified exposure to the investment-grade U.S. corporate bond market.
- Unique ETF of the ETF structure.
- Intermediate-duration portfolio, with exposure to short-, intermediate, and long-term maturities.
- Provides current income with high credit quality.
For more news, information, and strategy, visit the Fixed Income Channel.