Corporate Bond ETFs on Fed’s List of Purchase Priorities

Tuesday marked the beginning of the Federal Reserve’s corporate bond buying program, designed to help shore up the bond market amid the credit uncertainty brought on by the coronavirus pandemic. The list includes corporate bond exchange-traded funds (ETFs).

“The central bank will kick off its Secondary Market Corporate Credit Facility, which is part of a history-making initiative in which it will purchase exchange-traded funds that track the corporate debt market. Asset management giant BlackRock will be running the operation under the New York Fed’s supervision,” a recent CNBC report noted. “In particular, the facility will buy up ETFs that hold so-called fallen angel bonds of companies that formerly had been classified as investment grade but have been downgraded to speculative or junk, particularly in cases where those downgrades happened due to the coronavirus crisis.”

Bond Options for ETF Investors

As the Fed’s bond buying continues to play out, low rates have high yield bond seekers looking for ways to earn a higher-than-average return on debt, which they may find in the VanEck Vectors Fallen Angel High Yield Bond ETF (BATS: ANGL). ANGL seeks to replicate as closely as possible the price and yield performance of the ICE BofAML US Fallen Angel High Yield Index.

The index is comprised of below investment grade corporate bonds denominated in U.S. dollars that were rated investment grade at the time of issuance. ANGL essentially focuses on debt that has fallen out of investment-grade favor and is now repurposed for high yield returns with the downgraded-to-junk status.

If investors aren’t willing to assume the risk of high yield debt issues, there are also investment grade options to consider. ETFs in this category include the iShares Intermediate Credit Bond ETF (NASDAQ: CIU), iShares iBoxx $ Investment Grade Corp Bd ETF (NYSEArca: LQD) and Vanguard Interm-Term Corp Bd ETF (NASDAQ: VCIT).

More Access to Corporate Bonds

With the Federal Reserve stepping in to purchase corporate bonds to help keep the economy afloat, one ETF to consider 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.

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