When looking to pair yield and credit quality, corporate bonds are an ideal option, especially when it comes to investment-grade. Additionally, investors also laud the diversification benefits they offer to a fixed income portfolio.
MarketWatch highlighted the growing demand for corporate bonds in addition to Treasuries. This is evident in the interest in big tech names like Nvidia and Amazon where investors are not only flocking to their shares of stock, but also their debt.
“We definitely see a lot more dollars going into Treasury products, but in terms of the breadth of folks buying, it seems that a lot of folks are more interested in corporate bonds,” said Sam Nofzinger, Public’s general manager of crypto and brokerage.
Nofzinger offered two reasons for the gravitation to corporate bonds. One is the aforementioned need to diversify their fixed income portfolios that already have Treasuries while the obvious reason is the need to extract more yield. The expectation of interest rate cuts could also be adding the extra boost to demand.
“We’re starting to see them flock to corporate bonds. And just like the stock market, where retail investors tend to buy what they know, that’s also what they’re doing here,” Nofzinger said.
3 Corporate Bond Alternatives
Vanguard offers a trio of options for corporate bonds. Singularly, they can allow for investors to tailor their corporate bond exposure or when used in tandem, they can allow for bond laddering strategies.
For exposure to bonds with shorter maturity dates, consider using the Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH). The fund seeks to track the performance of a market-weighted corporate bond index with a short-term dollar-weighted average maturity. It employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index.
For a middle-of-the road solution that balances yield and rate risk, intermediate bond offerings of the corporate variety are available with the Vanguard Interim-Term Corporate Bond ETF (VCIT). This fund tracks the Bloomberg U.S. 5-10 Year Corporate Bond Index. That index includes U.S.-dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies.
Lastly, to maximize yield, consider the Vanguard Long-Term Corporate Bond Index Fund ETF Shares (VCLT). The fund tracks the performance of the Bloomberg U.S. 10+ Year Corporate Bond Index. This index includes U.S.-dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies with maturities greater than 10 years.
For more news, information, and analysis, visit the Fixed Income Channel.
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