Companies have been making good use of bonds with global interest rates at lows, which is offering them the opportunity to refinance existing debt. This is just one of the ways bonds have been used to address the COVID-19 crisis.
“With the global spread of the coronavirus (COVID-19) pandemic and the lockdown measures imposed by governments across the world, international capital markets participants are looking for financings to address the social and economic fallout,” a JD Supra report stated. “The market has remained open, and bonds, since the beginning of the crisis, have been the debt instruments of choice to enable capital raisings for projects with environmental benefits or positive social outcomes. These issuances can be seen as part of the larger movement to sustainable finance in the context of the global environmental, social, and governance, or ESG, trend.”
Europe isn’t immune to the effects of the pandemic and the region is doing what it can through the innovative use of bonds to counteract COVID-19.
“In Europe, issuers both in the public and private sectors have already taken action to issue COVID-19 response bonds,” the report said. “COVID-19 response bonds often take the form of social bonds, as they rely on the four key components of the Social Bond Principles (“SBP”) of the International Capital Market Association: (i) the utilization of bond proceeds for projects with social benefits; (ii) the process for project evaluation and selection; (iii) the management and tracking of the use of proceeds; and (iv) the reporting on the use of proceeds.”
For investors looking to get in on the corporate bond rally can look to investment grade options in exchange-traded funds (ETFs). 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).
Another option is the ProShares Investment Grade—Intr Rt Hdgd (BATS: IGHG). IGHG tracks the performance of the Citi Corporate Investment Grade (Treasury Rate-Hedged) Index so it invests in long positions in USD-denominated investment-grade corporate bonds issued by both U.S. and foreign domiciled companies and short positions in U.S. Treasuries.
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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