Yields Attracted Fixed Income Investors During First Half of 2023

The first half of 2023 saw rising yields work in favor of fixed income funds, according to data from Morningstar. This could pave the way for further strength in bond exchange traded funds (ETFs).

One of the main draws for fixed income investors was rising yields. With sights set on outpacing the U.S. Federal Reserve’s interest rate hikes, fixed income investors flocked to bonds for their attractive yield capabilities.

“The world’s highest bond yields in almost two decades attracted waves of capital into fixed-income investment funds in the first half of 2023,” Investopedia said.

The pull of yields meant investors poured capital into bond funds — most of which were funds domiciled in the U.S.

“Net inflows into the world’s bond mutual and exchange-traded funds (ETFs) totaled $236 billion in the year’s first half, according to data compiled by Morningstar,” Investopedia added further. “Bond funds in the U.S. accounted for almost two-thirds of that amount.”

2 Vanguard Options

The bond rally could potentially still be in its early stages. This would give investors an opportunity to gain exposure via ETFs, especially those that focus on U.S.-based debt. One fund to consider is the Vanguard Total Bond Market Index Fund ETF Shares (BND), which seeks the performance of the Bloomberg U.S. Aggregate Float Adjusted Index.

The Bloomberg U.S. Aggregate Float Adjusted Index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.

In order to attain more yield, fixed income investors can take on more credit risk via U.S. corporate bonds. If that’s an option, investors can consider 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 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.

For more news, information, and analysis, visit the Fixed Income Channel.