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How to Earn Solid Income With ETFs Amid Record-Low Yield?
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The coronavirus scare has done what no global economic shock could do to the benchmark U.S. treasury yield. The 10-year Treasury bond yield dropped below 1% for the first time in history on Mar 3 and closed at 1.02%. Though the Federal Reserve’s easy money policy in the past decade had kept yields in check, high demand for safe-haven assets has been driving the bond market so far this year.
Moreover, the Fed enacted an emergency rate cut of 50 bps on Mar 3 to contain the virus-led market rout and prevent any potential economic loss. Not only the Fed, the central banks of Australia and Hong Kong have walked the same path lately. Other banks like BoJ and PBOC have also expressed their intentions to easy policies, should the need be.
Against this backdrop, investors can opt for bond ETFs that offer benchmark-beating yields. Investment-grade corporate bonds appear better bets as these offer more stability than the junk ones and yield higher than the treasuries. The price of major U.S. investment-grade corporate bond ETFs hit all-time highs on Mar 3, while those of high-yield bond ETFs treaded lower.
Below we highlight a few investment-grade corporate bond ETFs that yield more than 3% and have gained considerably in the past month.
The underlying Markit iBoxx USD Liquid Investment Grade Index is a rules-based index consisting of liquid, U.S. dollar denominated, investment-grade corporate bonds for sale in the United States. It charges 15 bps in fees and has risen 2.2% in the past month (read: Top ETF Stories of 2019 & Picks for 2020).
The Bloomberg Barclays U.S. 10+ Year Corporate Bond 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. The fund has gained 3% in the past month. It yields 3.3% annually and charges 5 bps in fees.
iShares Core 10+ Year USD Bond ETF (ILTB - Free Report) – Yields 3.20% annually
The underlying Bloomberg Barclays U.S. Universal 10+ Year Index measures the performance of U.S. dollar-denominated taxable bonds that are rated either investment-grade or high yield, with remaining maturities greater than 10 years. It charges 6 bps in fees and has gained 4.8% in the past month.
SPDR Portfolio Long Term Corporate Bond ETF (SPLB - Free Report) – Yields 3.57% annually
The underlying Bloomberg Barclays Long U.S. Corporate Index is designed to measure the performance of U.S. corporate bonds that have a maturity of greater than or equal to 10 years. It charges 7 bps in fees. It has gained 2.9% in the past month.
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How to Earn Solid Income With ETFs Amid Record-Low Yield?
The coronavirus scare has done what no global economic shock could do to the benchmark U.S. treasury yield. The 10-year Treasury bond yield dropped below 1% for the first time in history on Mar 3 and closed at 1.02%. Though the Federal Reserve’s easy money policy in the past decade had kept yields in check, high demand for safe-haven assets has been driving the bond market so far this year.
Moreover, the Fed enacted an emergency rate cut of 50 bps on Mar 3 to contain the virus-led market rout and prevent any potential economic loss. Not only the Fed, the central banks of Australia and Hong Kong have walked the same path lately. Other banks like BoJ and PBOC have also expressed their intentions to easy policies, should the need be.
Source: CNN
Are Treasuries the Best Investments Now?
A few days back, Warren Buffett said “it makes no sense to lend money at 1.4% to the U.S. government, when it’s government policy to have 2% per year inflation.” Plus, this 1.4% yield will be taxed (read: Follow Warren Buffett With These ETF Strategies).
Against this backdrop, investors can opt for bond ETFs that offer benchmark-beating yields. Investment-grade corporate bonds appear better bets as these offer more stability than the junk ones and yield higher than the treasuries. The price of major U.S. investment-grade corporate bond ETFs hit all-time highs on Mar 3, while those of high-yield bond ETFs treaded lower.
Below we highlight a few investment-grade corporate bond ETFs that yield more than 3% and have gained considerably in the past month.
ETFs in Focus
iShares IBoxx $ Investment Grade Corporate Bond ETF (LQD - Free Report) – Yields 3.17% annually
The underlying Markit iBoxx USD Liquid Investment Grade Index is a rules-based index consisting of liquid, U.S. dollar denominated, investment-grade corporate bonds for sale in the United States. It charges 15 bps in fees and has risen 2.2% in the past month (read: Top ETF Stories of 2019 & Picks for 2020).
Vanguard Long-Term Corporate Bond ETF (VCLT - Free Report) ) – Yields 3.3% annually
The Bloomberg Barclays U.S. 10+ Year Corporate Bond 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. The fund has gained 3% in the past month. It yields 3.3% annually and charges 5 bps in fees.
iShares Core 10+ Year USD Bond ETF (ILTB - Free Report) – Yields 3.20% annually
The underlying Bloomberg Barclays U.S. Universal 10+ Year Index measures the performance of U.S. dollar-denominated taxable bonds that are rated either investment-grade or high yield, with remaining maturities greater than 10 years. It charges 6 bps in fees and has gained 4.8% in the past month.
SPDR Portfolio Long Term Corporate Bond ETF (SPLB - Free Report) – Yields 3.57% annually
The underlying Bloomberg Barclays Long U.S. Corporate Index is designed to measure the performance of U.S. corporate bonds that have a maturity of greater than or equal to 10 years. It charges 7 bps in fees. It has gained 2.9% in the past month.
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 >>