U.S. markets open in 4 hours 10 minutes

Corporate Bond ETFs Gain on Fed's New Initiatives

Sweta Jaiswal, FRM

The Federal Reserve has announced new initiatives to support the ailing U.S. economy. The central bank has pledged to make individual corporate bonds purchases under its Secondary Market Corporate Credit Facility (SMCCF). Notably, under the SMCCF emergency lending program that has a capacity of $250 billion, the Fed has already invested about $5.5 billion in ETFs that buy corporate bonds (per a Bloomberg article). The central bank can also access $25 billion in funding support from the Treasury Department as allocated by the CARES Act (per a Business Insider article).

The Federal Reserve has also discussed implementation of its buying strategy. The central bank has built a diversified market index of U.S. corporate bonds. In this regard, Fed has said that “this index is made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility’s minimum rating, maximum maturity and other criteria. This indexing approach will complement the facility’s current purchases of exchange-traded funds,” per a Bloomberg article. Moreover, Fed’s move was appreciated by Wall Street and helped major indexes recoup some losses. Furthermore, Fed’s move is expected to add liquidity to the bond market and provide funding support to large employers.

Fed’s announcement has come at a time when the resurgence of coronavirus cases in the United States is slowing down the reopening of the economy. Going by Johns Hopkins University data, the number of U.S. coronavirus infections passed the grim mark of two million and more than 115,000 Americans have lost their lives. Per a CNN report, coronavirus cases have surged in 18 states over the past week, with six states reporting more than a 50% jump. Resultantly, some government and health officials have paused the reopening efforts for some time.

Meanwhile, the Fed Chair Jerome Powell maintained a dovish stance in the FOMC meeting, concluded on Jun 10. He informed that there is no expectation of a rate hike through 2022. The Fed has pledged to continue pumping in stimulus to support the economy and strengthen it. The central bank has also reiterated that the Fed funds rate would likely stay in the 0-0.25% range and confirmed continued bond-buying. 

ETFs That Touched 52-Week Highs

Here we highlight some corporate bond ETFs that have hit their 52-week high levels following Fed’s announcement on Jun 15:

iShares iBoxx $ Investment Grade Corporate Bond ETF LQD — up 1.4% on Jun 15

The fund provides exposure to a broad range of U.S. investment grade corporate bonds. It has an expense ratio of 0.15% (ETF Asset Report of May).

Goldman Sachs Access Investment Grade Corporate Bond ETF GIGB — up 1.3%

The fund seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the FTSE Goldman Sachs Investment Grade Corporate Bond Index and charges an expense ratio of 0.14%.

Intermediate-Term Corporate Bond ETF VCIT— up 1.1%

The fund seeks to track the performance of a market-weighted corporate bond index, with an intermediate-term dollar-weighted average maturity. It has an expense ratio of 0.05%.

iShares Intermediate-Term Corporate Bond ETF IGIB — up 0.9%

The fund provides exposure to intermediate-term U.S. investment grade corporate bonds and charges an expense ratio of 0.06%.

FlexShares Credit-Scored US Corporate Bond Index Fund SKOR — up 0.9%

The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust Credit-Scored US Corporate Bond Index. It has an expense ratio of 0.22%.

SPDR Portfolio Intermediate Term Corporate Bond ETF SPIB — up 0.8%

The fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Bloomberg Barclays Intermediate US Corporate Index. It charges an expense ratio of 0.07%.

Invesco BulletShares 2027 Corporate Bond ETF BSCR— up 0.6%

The fund is based on the Nasdaq Bulletshares USD Corporate Bond 2027 Index. It has an expense ratio of 0.10%.

iShares 0-5 Year Investment Grade Corporate Bond ETF SLQD— up 0.6%

The fund provides exposure to short-term U.S. investment grade corporate bonds and charges an expense ratio of 0.06%.

Invesco BulletShares 2025 Corporate Bond ETF BSCP— up 0.6%

The fund is based on the Nasdaq Bulletshares USD Corporate Bond 2025 Index. It has an expense ratio of 0.10%.

SPDR Portfolio Short Term Corporate Bond ETF SPSB — up 0.4%

The fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Bloomberg Barclays U.S. 1-3 Year Corporate Bond Index and charges an expense ratio of 0.07%.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
iShares iBoxx Investment Grade Corporate Bond ETF (LQD): ETF Research Reports
 
Vanguard IntermediateTerm Corporate Bond ETF (VCIT): ETF Research Reports
 
SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB): ETF Research Reports
 
SPDR Portfolio Short Term Corporate Bond ETF (SPSB): ETF Research Reports
 
FlexShares CreditScored US Corporate Bond ETF (SKOR): ETF Research Reports
 
iShares 05 Year Investment Grade Corporate Bond ETF (SLQD): ETF Research Reports
 
Invesco BulletShares 2025 Corporate Bond ETF (BSCP): ETF Research Reports
 
Invesco BulletShares 2027 Corporate Bond ETF (BSCR): ETF Research Reports
 
Goldman Sachs Access Investment Grade Corporate Bond ETF (GIGB): ETF Research Reports
 
iShares IntermediateTerm Corporate Bond ETF (IGIB): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report