There’s some talk in the markets that bonds have had their day in the sun and now their time is up. Gold, for example, could supplant bonds in a traditional 60-40 asset allocation, but bonds can still be a safe option even for hesitant investors.

One area to look at is quality corporate bonds.

“Despite a bulge of new issues as the pandemic spread and companies went crazy raising cash, demand for bonds still overwhelms supply,” a Kiplinger article noted. “Combined with low and sticky interest rates, this is an ongoing bonanza for segments such as A-rated to triple-B-rated U.S. cor­porates. The S&P index of BBBs has a total return of 21% since its March bottom and 8.6% for the year to date. The yield spread between BBBs and Treasuries in early August stood at 1.8 percentage points. That gap is wider than it has been almost continuously from 2016 until early 2020, signaling more room for appreciation if you either own a good bond fund (or two) or hold individual bonds in stable industries with coupons of 5% or 6%.”

Another ETF to consider for bond exposure is the Goldman Sachs Access Investment Grade Corporate Bond ETF (GIGB). GIGB seeks to provide investment results that closely correspond to the performance of the FTSE Goldman Sachs Investment Grade Corporate Bond Index.

The fund seeks to achieve its investment objective by investing at least 80% of its assets (exclusive of collateral held from securities lending) in securities included in its underlying index. The index is a rules-based index that is designed to measure the performance of investment grade, corporate bonds denominated in U.S. dollars that meet certain liquidity and fundamental screening criteria.

^SPXBA Chart

^SPXBA data by YCharts

Another area to look is local government debt via municipal bonds.

There are problems implied by shortfalls in local tax revenue and falling big-city property values and office rents, as well as the cancellation of conventions and sporting events,” the article added. “But heavy demand, the absence of valuable personal tax breaks and the promise of help if needed from the Federal Reserve are all strong supports. Just apply the normal rules: Avoid bonds from poor or shrinking jurisdictions; lean toward debt for essential services, such as schools and water and sewer lines; and either buy bonds singly or use actively managed funds instead of index-based exchange-traded funds.”

Here are a couple of muni bond ETFs to consider:

  1. VanEck Vectors AMT-Free Long Municipal Index ETF (MLN): seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Bloomberg Barclays AMT-Free Long Continuous Municipal Index. The index is comprised of publicly traded municipal bonds that cover the U.S. dollar-denominated long-term tax-exempt bond market.
  2. Franklin Liberty Municipal Bond ETF (FLMB):  seeks a high level of current income that is exempt from federal income taxes. Although the fund tries to invest all of its assets in tax-free securities, it is possible that up to 20% of the fund’s net assets may be in securities that pay interest that may be subject to the federal alternative minimum tax and, although not anticipated, in securities that pay interest subject to other federal or state income taxes.

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