Federal governments from around the globe are doing whatever they can to throw money at curbing the economic effects of the coronavirus pandemic, including bond purchases, which could drive yields down further.

“Since the COVID-19 pandemic began earlier this year, central bank purchases of government bonds have driven yields, and market volatility, ever lower,” an Investors’ Corner article by BNP Paribas Asset Management noted. “As a result, 30-year UK Gilt yields are now on par with those on Japanese government bonds (JGBs). Ten-year US Treasury yields have been remarkably stable, moving in a narrow 20bp range for most of the quarter even as equity markets posted one of the biggest gains in decades. Negative yielding debt has never been more prevalent in global bond markets.”

“As governments have increased their bond issuance significantly to finance the economic rescue packages, central banks have more than kept up. In the US, the Federal Reserve’s ownership of Treasury bonds has risen to levels not seen since the 1970s, though it is still well behind Japan, or even Germany,” the article noted further.

^MSACWIHDY Chart

^MSACWIHDY data by YCharts

High Yield Seekers Can Give this ETF a Look

High yield seekers looking to add more pop to their fixed income portfolio can take a look at the FlexShares High Yield Value-Scored Bond Index Fund (HYGV). The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust High Yield Value-Scored US Corporate Bond IndexSM.

The index reflects the performance of a broad universe of U.S.-dollar denominated high yield corporate bonds that seeks a higher total return than the overall high yield corporate bond market, as represented by the Northern Trust High Yield US Corporate Bond IndexSM. The fund generally will invest under normal circumstances at least 80% of its total assets (exclusive of collateral held from securities lending) in the securities of its index.

Here are a couple of other funds to consider for junk bond exposure:

  1. iShares iBoxx $ High Yield Corp Bond ETF (NYSEArca: HYG): HYG tracks the investment results of the Markit iBoxx® USD Liquid High Yield Index, which is comprised of high yield U.S. corporate bonds that have less than investment-grade quality.
  2. SPDR Bloomberg Barclays Short-Term High Yield Bond ETF (NYSEArca: SJNK): SJNK seeks to provide investment results that correspond generally to the price and yield performance of the Bloomberg Barclays US High Yield 350mn Cash Pay 0-5 Yr 2% Capped Index. SJNK invests its total assets in the securities comprising the index, which is designed to measure the performance of short-term publicly issued U.S. dollar-denominated high yield corporate bonds.

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