It is possible to obtain high income combined with high credit quality when investors in fixed income securities Vanguard Long-Term Bond Index Fund ETF Shares (BLV) to look closer.

Fixed income investors are already going through difficult times with continued inflation threats moving from transient to perhaps longer. Additionally, a relatively low interest rate environment does not offer many yield options, and in order to extract that extra yield, investors may be forced to turn to high risk assets.

A recent Bank of America survey found that global fund managers are also not very sensitive to the current market environment. In a recent MarketWatch article, they noted that growth expectations have recently worsened.

“The main reasons are concerns about inflation and slowing growth in China which has led to a flight from bonds to cash, where levels have reached a 12-month high,” the article said. MarketWatch.

In the meantime, investors who stay in bonds aren’t just sticking with safe haven Treasuries. While the common refrain in capital markets is “no risk, no reward,” BLV offers investors relatively low risk and high potential reward.

With a 30-day SEC yield of 2.63% and a yield to maturity of 2.7%, BLV offers investors a higher percentage point than benchmark 10-year treasury bills. The ETF also offers a low expense ratio of 0.05% which falls almost 50 basis points below the category average of 0.53%.

Be long on bonds

With an average debt maturity of 16 years in its holdings, BLV seeks to track the performance of the Bloomberg US Long Government / Credit Float Adjusted Index. This index includes all medium and larger issues of publicly issued US government bonds, investment grade corporate and international dollar denominated bonds with maturities greater than 10 years.

As such, BLV can take advantage of a variety of options when it comes to bond investing. As mentioned, the common denominator is that the fund sticks to a higher duration with debt holdings exceeding a decade.

Product summary from Vanguard website:

  • Seeks to track the performance of the Bloomberg US Long Government / Credit Float Adjusted Index.
  • Class of shares listed on the stock exchange.
  • Passive management using index sampling.
  • Diversified exposure to the high-quality long-term US bond market.
  • Provides high current income with high credit quality.

For more news, information and strategy, visit the website Fixed income channel.


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Benjamin Steele

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