High-quality, investment-grade fixed-income assets have garnered a lot of attention as the markets lose their footing. Investors seeking to branch out of the Treasuries market may now consider the ProShares ‘ new covered bond ETF with an emphasis on AAA-rated securities.
According to a press release, the ProShares USD Covered Bond (COBO - News) tries to reflect the performance of the BNP Paribas Diversified USD Covered Bond Index, which tracks covered bonds, a form of collateralized corporate debt issued by non-U.S. financial institutions and denominated in the U.S. dollar. Each covered bond is rated AAA by at least one rating agency. COBO has an expense ratio of 0.35%.
Covered bonds are different from regular corporate bonds in that covered bondholders have a senior unsecured claim against the issuer in the event of a default and are also given preferential claim to segregated, actively maintained “cover pool” of assets.
Triple-A covered bonds currently offer higher yields than U.S. Treasury and AAA-rated U.S. corporate bonds of similar duration.
“Many investors are interested in high credit quality bonds, but the supply of AAA-rated corporate debt in the U.S. is very limited,” Michael L. Sapir, Chairman and CEO of ProShare Advisors LLC, said in the press release. “COBO, a first-of-its-kind ETF, fills the gap by accessing the highest-rated segment of the $3 trillion, 240-year-old covered bond market.”
For more information on corporate bonds, visit our corporate bonds category.
Max Chen contributed to this article.