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Is it the Right Time to Buy Bond ETFs? Let's Explore

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The coronavirus epidemic is emerging as a serious threat to global economic growth, with the death toll rising to 2,619 globally along with 79,565 confirmed cases. Notably, the 30-year Treasury yield declined to a record low level on Feb 21. The falling yields were a result of investors’ flight for safety to bonds,as concerns over slowing global economic growth due to the coronavirus outbreak started escalating (read: Coronavirus Puts These Country ETFs on High Alert).

Given China’s dominance in the world economy, it is believed that global supply chains have already been hit hard. Analysts assume that decline in China’s domestic consumption level will adversely impact the companies acting as transport groups, hospitality chains, airlines, luxury goods makers and retailers. For example, the trade body for the global airline industry — International Air Transport Association— believes that the waning passenger demand due to the coronavirus epidemic will result in a $29.3-billion revenue decline of the airline industry this year. The impact of the coronavirus outbreak can already be seen on China’s economy. The country, which happens to be the largest auto market, witnessed a 92% slump in car sales during the first two weeks of February (per data from China Passenger Car Association). 

Going on, analysts at Oxford Economics project that the coronavirus outbreak globally can disrupt the GDP by 1.3% or $1.1 trillion in lost output, if it turns into a pandemic. Further, Kristalina Georgieva, head of the International Monetary Fund, noted that the Covid-19 outbreak is the “most pressing uncertainty”, which the global economy has to deal with right now (read: ETF Areas That Can Stay Strong Amid Covid-19 Outbreak).

Should You Opt for Bond ETFs?

In 2019, the Sino-US trade ambiguity, escalating Middle East tensions, uncertainty in market conditions due to geopolitical tensions, slowdown in the global economy and Brexit woes added stimulus to the temptation of bond ETFs. In fact, 51% of the net cash flows into U.S.-based exchange-traded funds were invested in fixed-income assets. The rapidly-aggravating concerns regarding the plaguing coronavirus are making high-yielding fixed-income investments attractive.  

Against this backdrop, we discuss a few bond ETFs, which can help investors cash in on the escalating global tensions.

iShares Core U.S. Aggregate Bond ETF (AGG - Free Report)

The fund provides broad exposure to U.S. investment-grade bonds and tracks the Bloomberg Barclays U.S. Aggregate Index (read: Are U.S. Assets Acting as Safe Havens? ETFs in Focus).

AUM: $74.88 billion

Expense Ratio: 0.05%

Past-year Return: 7%

Vanguard Total Bond Market ETF (BND - Free Report)

The fund provides broad exposure to U.S. investment grade bonds and tracks the  Bloomberg Barclays U.S. Aggregate Float Adjusted Index (read: January ETF Asset Report: U.S. Equities Win).

AUM: $52.90 billion

Expense Ratio: 0.04%

Past-year Return: 7.3%

iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD - Free Report)

The fund provides exposure to a broad range of U.S. investment grade corporate bonds and tracks the Markit iBoxx USD Liquid Investment Grade Index (read: Top ETF Stories of 2019 & Picks for 2020).

AUM: $34.97 billion

Expense Ratio: 0.15%

Past-year Return: 13.3%

Vanguard Intermediate-Term Corporate Bond ETF (VCIT - Free Report)

The fund seeks to provide a moderate and sustainable level of current income. It invests primarily in investment-grade corporate bonds and tracks the Bloomberg Barclays U.S. 5-10 Year Corporate Bond Index.

AUM: $28.94 billion

Expense Ratio: 0.05%

Past-year Return: 9.8%

Vanguard Long-Term Treasury ETF (VGLT - Free Report)

VGLT tracks the Bloomberg Barclays U.S. Long Treasury Bond Index. The fund seeks a high and sustainable level of current income through investment in government bonds.

AUM: $1.88 billion

Expense Ratio: 0.05%

Past-year Return: 21.4%

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