Corporate Bonds Pricey But Merit Attention

As measured by the widely followed Markit iBoxx USD Liquid Investment Grade Index, investment-grade corporate bonds aren’t doing much to thrill fixed income investors this year. But yields on such debt are attractive. And that’s enough to keep many market participants engaged.

However, some bond experts note that credit spreads, which illustrate the risk/reward between corporates and Treasurys, are narrowing. That implies corporate bonds are expensive. Narrowing credit spreads could highlight opportunity, with unique approaches to the investment-grade corporate bond space. That includes the WisdomTree U.S. Short Term Corporate Bond Fund (SFIG).

SFIG tracks the WisdomTree U.S. Short Term Corporate Bond Index. That index is outpacing the Markit iBoxx USD Liquid Investment Grade Index on a year-to-date basis. Some of that outperformance is attributable to SFIG’s duration of just 2.40 years. But the fundamental weighting of the ETF’s benchmark shouldn’t be overlooked.

Corporates Being Pricey Not Indictment of SFIG

It should not be ignored that credit spreads have narrowed. But it’s also worth noting that scenario isn’t an indictment of corporate bonds as a whole. Nor does it imply upside is limited for SFIG. In fact, a case can be made that SFIG could shine in the current climate for corporate debt.