With Neutral Near, This Corporate Bond ETF Could Work

The Federal Reserve will likely deliver its fourth interest rate hike of 2018 later this month, but recent commentary from Fed Chair Jerome Powell indicates the central bank could slow its pace of rate hikes next year.

With a neutral stance on rates becoming more of a reality, some intermediate-term fixed income exchange traded funds could be worth examining. That includes the iShares Intermediate-Term Corporate Bond ETF (NASDAQ: IGIB). IGIB has an effective duration of 6.15 years, according to iShares data.

In August, the underlying index for the Fund changed from the Bloomberg Barclays U.S. 1-10 year Credit Index to the ICE BofAML 5-10 Year US Corporate Index, according to iShares.

“The fund’s new bogy is cleaner (it excludes supranationals, municipal bonds, and sovereign debt, which were included in its predecessor) and more modular (when considered in the context of its similarly recast sibling exchange-traded funds) than its prior one,” said Morningstar in a note out Wednesday.

Interest In The Intermediate

Various data points indicate a neutral view on U.S. interest rates is not too far off.

“Our analysis pegs the current U.S. neutral rate at around 3.5%, a little above its long-term trend,” said BlackRock. “While uncertainty abounds over where neutral lies in the long run, our estimate sits in the middle of the 2.5% to 3.5% range identified by the Fed.”