The iShares Short-Term Corporate Bond ETF (NASDAQ: IGSB) has a new look. The fund, which previously traded under the ticker “CSJ,” now tracks the ICE BofAML 1-5 Year US Corporate Index.
IGSB “seeks to track the investment results of an index composed of U.S. dollar-denominated investment-grade corporate bonds with remaining maturities between one and five years,” according to iShares.
With the Federal Reserve poised to raise interest rates twice before the end of this year, fixed-income investors can go down the yield curve to lower duration bond exchange trade funds to diminish rate risks.
In a rising rate environment, the price of older bonds with lower rates will fall since these older debt securities appear less attractive and traders would demand a discount on the older lower-yielding debt. On the other hand, new bonds are issued at the newer and higher rates, so investors would be less inclined to hold older debt securities with less attractive yields. As a result, the less appealing older bonds will see prices fall in response to the diminished demand.
Bond funds hold a collection of debt with varying maturities, buying and selling debt securities to maintain their short-, intermediate- or long-term strategy. When it comes to bond ETFs, investors should look at the duration, or a bond fund’s measure of sensitivity to gauge their investment’s exposure to changes in interest rates – a higher duration means a higher sensitivity to shifts in rates.
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Lower Duration for IGSB
The $10.27 billion IGSB holds nearly 1,000 bonds and has an effective duration of 2.69 years. If interest rates rise, shorter term bond funds may show limited sensitivity to the changes, whereas bond funds with longer durations could take a beating.
IGSB holds short-term U.S. investment-grade corporate bonds with remaining maturities between one and five years.
IGSB charges just 0.06% per year, or $6 on a $10,000 investment.
For more information on the fixed-income market, visit our bond ETFs category.