As American Treasury rates have continued to fall thanks to
European issues and a sputtering economy, the ripple effect has
been felt throughout the fixed income world. Savers have been
punished with ultra-low rates while mortgages are at historic lows
and corporations are able to borrow at equally depressed
In fact, recent moves in the bond issuance market further
underscore the drastic situation for many investors.
Unilever recently sold over half a billion
in five year bonds with a coupon of just 0.85% while Texas
Instruments unveiled bonds on three year debt that had a coupon of
just 0.45% (see
Is The Bear Market for Bond ETFs Finally Here?
As a comparison to U.S. Treasury securities, the yield
differential is pretty low across the board. For the three year
issuance, it was just 16 basis points while the five year corporate
note is only yielding 26 basis points more than its U.S. Treasury
This seems like a paltry premium for investors to receive over
U.S. Treasury bonds considering that the American government has
the power of taxation and the Fed has the ability to print money
indefinitely in order to prevent a default.
Any of the companies obtaining these ultra low yields have none
of these advantages but are still yielding next to nothing, forcing
many investors to look to other avenues in order to boost current
incomes back to tolerable levels while still staying in the short
end of the curve (see
Floating Rate Bond ETF Investing 101
Luckily for investors who are struggling in this corner of the
market, there are a number of ETF choices which aren't too risky
from a duration perspective but offer up much more reasonable
yields. Below, we highlight three of these bond ETFs which could
offer up much more respectable payouts in today's low rate
iShares S&P/Citigroup 1-3 International Treasury Bond
For investors looking for broad bond exposure outside of the
U.S. market, ISHG could be an intriguing pick. The fund is heavily
tilted towards sovereign bonds in Europe, although Japanese
securities do account for the single biggest weighting at just
under one-fourth of the total.
Nearly all of the fund's holdings are rated investment grade,
although it does have an 11% allocation to high yield which helps
to boost income. In terms of duration risk, the effective duration
is just under 1.8 years while the weighted average maturity comes
in at a similar figure (see
The Guide to International Treasury Bond ETF
Despite this, the fund's 12 month yield is a robust 4.5%,
handily beating out comparable corporate and U.S. government
securities. However, the yield-and the total return of the fund-has
come down significantly in recent months pushing the 30 Day SEC
yield to just under 90 basis points.
Given this trend, the fund may not be the solid yield
destination that it once was, although it still offers a payout far
superior to similar products that have three years to maturity.
Furthermore, the fund charges just 35 basis points a year in fees
suggesting that it will be a low expense ratio choice in the
segment as well.
WisdomTree Australia & New Zealand Debt Fund (
If you are looking for a more targeted approach that can
potentially offer a higher yield, AUNZ could be another choice in
the international bond market. The fund tracks securities issued by
institutions based in Australia or New Zealand, holding assets that
are denominated in either of the currencies in these two
The effective duration for this fund comes in at a modest 3.7
years although the 30-Day SEC yield is a very solid 2.7%. This is
possible largely due to the relatively high interest rates that
both Australia and New Zealand currently have, a situation that
helps ensure bonds issued in these currencies have more reasonable
payouts than many of their Western peers (see
Top Three High Yield Financial ETFs
In total, the fund holds 60 securities in its basket and it has
a heavy weighting on Australian securities. New Zealand accounts
for just under 12% of the total, while securities from the nation
only make up one of the top seven spots in the fund's asset
However, investors should note that the fund has had a rough
time over the past few months, adding just about 1.1% in the
trailing six month period. Additionally, fees are a little higher
at 45 basis points a year while volume in the fund-much like
ISHG-isn't too great, suggesting relatively high total costs for
this higher yielding short duration fund.
Guggenheim BulletShares 2015 High Yield Corporate Bond
Some might be looking for a more American focus in the bond
market that still has the ability to deliver outsized yields at the
short end of the curve. For these investors, a closer inspection of
Guggenheim's BulletShares lineup of high yield products could be a
These 'BulletShares' track indexes of fixed income securities
that have effective maturities in a given calendar year, allowing
investors to target their exposure more effectively. By doing this,
investors are able to receive a final distribution of NAV at the
end of the fund's life, making these products very similar to the
experience that is had in regular fixed income holdings.
Currently, Guggenheim offers investment grade and high yield
choices for several years, but we have focused in on the 2015
version of the high yield variety, BSJF, as a way to obtain a
modest level of risk/reward while still accessing a fund that has a
relatively high volume level (also see
Are The Fundamental Bond ETFs Better Fixed Income
With this approach, investors have a fund that has an average
effective duration of just 2.7 years and 111 securities in total.
The yield comes in at roughly 4.9% when looking at the trailing
twelve months while the total costs are 42 basis points a year.
Investors should also note that the fund has close to a quarter
billion in AUM and average daily volume above 100,000 shares,
implying low bid ask spreads. Furthermore, the product has
performed relatively well, adding about 1.6% in the past six months
and 2% in the past one year period, better than lower yielding
short duration treasury bonds in the same time frame.
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WISDMTR-A&NZ DF (AUNZ): ETF Research
GUGG-BS2015 HYC (BSJF): ETF Research Reports
ISHARS-SP 1-3IT (ISHG): ETF Research Reports
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