Last week, the Federal Reserve decided to stand pat on interest rates, which had to give prospective home buyers and current homeowners looking to refinance something to cheer about. Another byproduct of this low-rate environment is that these mortgages are also feeding demand for bonds.

“Despite the rising supply of these bonds, some investors, including the Federal Reserve, are scooping them up and they remain in high demand,” a MSN article said. “The Fed is among the largest buyers of mortgage bonds, as the central bank seeks to inject more liquidity into the financial markets.”

Large investment firms are also getting on in the action, particularly for the attractive yields these mortgages can offer relative to government debt.

“These bonds are also popular among more sophisticated players such as institutional investors, because of their relative safety yet higher yield than Treasury bonds,” the article noted further. “And even banks, which may have sold off the underlying mortgages already, may be keen to invest in the bonds because they’re awash with deposits and need to earn some money on that cash.”

30 Year Mortgage Rate Chart

30 Year Mortgage Rate data by YCharts

Speaking of yields, here are a few funds exchange-traded fund (ETF) investors may want to consider for exposure high yield debt:

  1. Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF (ESCR): seeks investment results that correspond generally to the performance, before fees and expenses, of the Bloomberg Barclays MSCI US Corporate Sustainability SRI Sector/Credit/Maturity Neutral Index. The index generally aims to keep the broad characteristics of its parent index, the Bloomberg Barclays US Corporate Index (an investment grade corporate bond universe), resulting in a broad investment grade fixed income market exposure with ESG aspects.
  2. Xtrackers USD High Yield Corporate Bond ETF (HYLB): seeks investment results that correspond generally to the performance, before fees and expenses, of the Solactive USD High Yield Corporates Total Market Index. The index comprised of U.S. dollar-denominated high yield corporate bonds will concentrate its investments in a particular industry or group of industries to the extent that its underlying index is concentrated.
  3. Xtrackers Short Duration High Yield Bond ETF (SHYL): seeks investment results that correspond generally to the performance, before fees and expenses, of the Solactive USD High Yield Corporates Total Market 0-5 Year Index. The fund will invest at least 80% of its total assets (but typically far more) in component securities of the underlying index. The underlying index is designed to track the performance of short-term publicly issued U.S. dollar-denominated below investment grade corporate debt.

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