Vanguard Long-Term Corporate Bond Index Fund ETF SharesNASDAQ: VCLT

VCLT has performed well since October 2023, with a 13.2% total return and a 5.8% 30-day SEC yield. Inflation has improved but is still above the Federal Reserve's target. While U.S. treasury funds may be the better choice for short-term investors, long-term income investors should continue to own VCLT.

The desire for corporate bonds is increasing for reasons beyond just seeking higher returns. With improving credit quality, corporate bonds now provide a combination of reduced credit risk and higher yields compared to government bonds.

A flurry of investor interest is taking place in the corporate bond market. As the central bank reiterated its intention to institute rate cuts after a recent pause, investors could be scrambling for more yield before that proverbial window of opportunity closes.

Bonds are at a tricky juncture with inflation and the Fed's rate cuts. Bullish on duration, but bearish on junk credit. The Vanguard Long-Term Corporate Bond Index Fund ETF Shares offers exposure to the long-term, investment-grade U.S. corporate bond market. The VCLT ETF holds a diversified portfolio of over 2,800 individual holdings, with top holdings including Anheuser-Busch, CVS Health, and Goldman Sachs.

Now is a bad time to buy corporate bonds, especially long-term bonds like those in the Vanguard Long-Term Corporate Bond Index Fund ETF Shares. The yield spread between BAA corporate bonds and Treasury Rates is near its lowest levels in 30 years, indicating high risk-premium of corporate bonds. Additionally, the VCLT ETF is also exposed to credit risk and certain tax headwinds compared to its Treasury counterparts.

The Vanguard Long-Term Corporate Bond ETF has seen its yield to maturity fall below cash for the first time on record. The recent rally in the VCLT has been driven by a drop in long-term bond yields and narrowing credit spreads. The risks outweigh the rewards for the VCLT at present, but still-high real yields suggest it should still outperform US stocks absent a sustained rise in inflation.

Vanguard Long-Term Corporate Bond Index Fund ETF Shares is at a crossroads due to the lack of clarity regarding the interim relationship between the yield curve and credit spreads. Our analysis suggests the curve's level will drop in 2024 while credit and term spreads may rise. However, we do not believe that credit and term premiums will dominate proceedings. Our risk premium outlook is somewhat neutral. However, bottom-up factors such as U.S. interest coverage ratios suggest that VCLT ETF is set to receive fundamental support.

Vanguard Long-Term Corporate Bond ETF delivered negative returns in the past 2 years due to aggressive interest rate hikes by the Federal Reserve. The current yield of VCLT is attractive at 6.08%, making it a good time to accumulate shares. Investors should treat any negative spikes in VCLT's fund price as buying opportunities.

With money market funds yielding 5%, many advisors have been leaning on short-term money market funds. And while that 5% is great, what happens if and when that yield goes away?