After a rough year, investment-grade corporate debt appears to be making a comeback in 2023. Since the start of the year, investment-grade corporate bonds globally have gained more than 3.6%, according to Bloomberg Indexes, putting them on track for experiencing a record return for January. Plus, in January alone, companies worldwide have already sold more than $400 billion in bonds.
“Bonds are trading at yields that were unattainable during the era of central bank largesse and many believe that investment-grade companies are financially sound and can weather the economic turbulence,” according to Financial Advisor.
On CNBC’s “Squawk Box Europe,” CrossBorder Capital managing director Michael Howell said that corporate debt could be a strong investment option in 2023 as fundamentals hold steady and tight financial conditions weigh on equity markets.
“Balance sheets are good, so far revenues seem to be holding up, and they [companies] can access borrowing from the banks,” Howell said. “If you go back to 2008, remember the banks’ financing tap turned off very quickly, and that was where there was a real problem. So, this time, corporate debt markets are actually in a reasonably good shape, so that is an area that I would suggest is not a bad area for 2023.”
For investors wanting to have some broad exposure to corporate debt, there’s the Vanguard Long-Term Corporate Bond Index Fund ETF Shares (VCLT) and the Vanguard Total Corporate Bond ETF ETF Shares (VTC).
VCLT seeks to track the performance of a market-weighted corporate bond index with a long-term dollar-weighted average maturity. The fund, which features an expense ratio of 0.04%, employs an indexing investment approach designed to track the performance of the Bloomberg 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 10 years.
While VTC also provides diversified exposure to the investment-grade U.S. corporate bond market, this fund has an intermediate-duration portfolio with exposure to short-, intermediate-, and long-term maturities. VTC is a fund of funds and employs an indexing investment approach designed to follow 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 publicly issued by industrial, utility, and financial issuers. The fund comes with an expense ratio of 0.05%.
For more news, information, and analysis, visit the Fixed Income Channel.