🏢 Corporate Bond ETFs
Corporate bonds carry credit risk — the possibility that the company can’t pay. This risk is compensated with higher yields than treasuries.
The credit spectrum
| Rating | Category | Default Risk |
|---|---|---|
| AAA to A- | Investment-grade (high) | Very low |
| BBB+ to BBB- | Investment-grade (low) | Low |
| BB+ to B- | High-yield (junk) | Moderate |
| CCC+ and below | Distressed | High |
The dividing line is BBB-. Above = investment-grade. Below = junk.
Investment-grade ETFs
| ETF | Duration | Expense | Best For |
|---|---|---|---|
| LQD | ~8.4 years | 0.14% | Benchmark, liquid |
| VCSH | ~2.7 years | 0.04% | Short-term IG |
| VCIT | ~6.4 years | 0.04% | Intermediate IG |
| VCLT | ~13.4 years | 0.04% | Long-term IG |
| IGSB | ~2.7 years | 0.04% | Short-term IG |
| LQDH | ~0 years | 0.24% | Rate-hedged IG |
LQDH holds LQD plus interest rate swaps — you get credit spread without rate sensitivity.
Credit spread signal
The LQD/TLT ratio tracks credit conditions:
- Ratio falling = Spreads widening, corporates stressed
- Ratio rising = Spreads tightening, confidence returning
High-yield (junk) ETFs
Junk bonds behave like equities during stress — they sell off with stocks, not rally like treasuries.
| ETF | Duration | Expense | Best For |
|---|---|---|---|
| HYG | ~3.8 years | 0.49% | Benchmark, liquid |
| JNK | ~3.9 years | 0.40% | Alternative to HYG |
| SJNK | ~1.9 years | 0.40% | Short-duration junk |
| USHY | ~3.6 years | 0.15% | Lowest cost |
TLT/HYG rising = Credit stress, risk-off. This ratio often leads equity weakness.
Floating rate ETFs
Floating rate coupons adjust with rates — minimal duration risk, but credit risk remains.
| ETF | Expense | Best For |
|---|---|---|
| FLOT | 0.15% | IG floating rate |
| BKLN | 0.65% | Senior loans (HY) |
| SRLN | 0.70% | Active senior loans |
FLOT = investment-grade, low yield. BKLN = junk-rated but senior secured, higher yield.
Quick reference
| Goal | ETF |
|---|---|
| IG exposure (broad) | LQD |
| IG exposure (low duration) | VCSH, IGSB |
| IG exposure (rate hedged) | LQDH |
| High-yield exposure | HYG, JNK |
| High-yield (lower duration) | SJNK |
| High-yield (lowest cost) | USHY |
| Rate hike hedge | FLOT |
| Senior loans (higher yield) | BKLN, SRLN |
For signal interpretation and trading strategies, see Bond Market Signals.