This article was originally published on ETFTrends.com.
The Dow Jones Equal Weight U.S. Issued Corporate Bond Index has been inching up higher year-to-date--about 27 percent--and interest in these four corporate bond ETFs has increased in the past five days, possibly signaling more capital inflows from fixed income investors seeking higher yields.
1. Vanguard Long-Term Corporate Bd ETF (VCLT) tracks the performance of a market-weighted corporate bond index with a long-term dollar-weighted average maturity and is up 0.46% today.
2. iShares 10+ Year Credit Bond ETF (CLY) seeks to track the investment results of the Bloomberg Barclays U.S. Long Credit Index and is up 0.42% today.
3. iShares Intermediate Credit Bond ETF (CIU) tracks the investment results of the Bloomberg Barclays U.S. Intermediate Credit Bond Index and is up 0.11% today.
4. SPDR Portfolio Short Term Corp Bd ETF (SPSB) corresponds to the price and yield performance of the Bloomberg Barclays U.S. 1-3 Year Corporate Bond Index. SBSP is also up .05% today.
Appetite for Risk Increasing
Part of the move towards higher-yielding debt could be attributed to an increased appetite for risk by fixed income investors. The Dow is currently on pace to have a back-to-back positive trading session, which bodes well for equities investors.
However, fixed income investors will flock to more risk, according to Gary Ribe, chief investing officer at MACRO Consulting Group.
"For stock investors, that typically means chasing what is hot today," said Ribe. "For fixed-income investors, that means venturing more heavily into more speculative issuers and instruments."
The consistent safe havens of government debt, such as the 10-year Treasury have been scrapped in favor of higher-yield plays as the Federal Reserve hinted at more rate spikes this year after raising the federal funds rate 25 basis points most recently.
"Investor interest has driven the spread that a high-yield instrument pays over a comparable term treasury to very low levels, a little more than 3.3 percent, which is bumping along a 10-year low," said Ribe. "The ravenous appetite for bank-loan products has borrowers going back to banks and renegotiating the terms of their loans, lowering spreads and dropping interest rate floors. As a result, interest rates are finally rising and investors are coming to learn that there isn’t the pickup they’d expected because the issuer negotiated a better deal."
For more trends in fixed income, visit the Fixed Income Channel.
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