By Robin Marshall, Director, Fixed Income, FTSE Russell.

The Fed recently broadened the range of assets it will buy in Quantitative Easing (QE) programs to include corporate bonds and sub-investment grade issues, supplementing US Treasuries and (agency) MBS. Given the severity and broad-based nature of the shock to the US economy from the coronavirus, this begs the question as to whether the Fed will follow the Bank of Japan’s lead and include US equities in its range of QE assets?

ETFs providing exposure to USD high-yield bonds have rallied after the Federal Reserve announced it would expand its asset purchasing program to include them. The move has raised a few eyebrows, however, as critics argue the Federal Reserve risks distorting investors’ risk perception, leading to a misallocation of capital.

FTSE Russell and the Johannesburg Stock Exchange have partnered on a series of co-branded fixed income indices measuring the performance of domestic bonds issued in South Africa. The indices provide comprehensive coverage of South African sovereign, state-owned, and corporate bonds but come at a troubling time for the country which has recently been downgraded to sub-investment-grade territory.

Financial markets have ended the first quarter of 2020 severely bruised and still reeling from a widespread sell-off driven by the economic shock of the coronavirus pandemic. The fire sale was most pronounced in risky assets such as equities and corporate bonds with some markets posting their worst quarterly performance in decades.

The Federal Reserve has announced it will support US credit markets by extending its asset purchase program to investment-grade corporate bonds and ETFs that hold them. Investors reacted positively to the news with the $30.3bn iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD US) attracting over $1bn in net inflows and gaining 3.6%, halting the fund’s steep decline over the past two weeks.

By Brian Luke, Global Head of Fixed Income Indices, S&P Dow Jones Indices.

Steep discounts to net asset values (NAVs) on popular fixed income ETFs are bringing an onslaught of doomsday projections. But while the signs of stress are evident, it’s important to decouple the dysfunction of the bond market from the investment product as well as the manager’s skill.

AgioFunds and its listing partner Beta Securities Poland have announced the launch of the WIG20lev Beta ETF (BETAW20L PW) on GPW, the Warsaw Stock Exchange. The fund provides investors with 200% daily leveraged exposure to the WIG20 Index, the foremost gauge of the Warsaw stock market. Robert Sochacki, Member of the Management Board of Beta Securities Poland, commented, “The launch of WIG20lev BETA ETF is a natural continuation of the November launch of WIG20short BETA ETF. These funds are dedicated to investors who expect WIG20 to change sharply.”

By the Cross Asset and ETF Research Team at Lyxor Asset Management.

High-yield bonds could be a useful addition to many investors’ portfolios as they offer attractive return potential and good diversification benefits. And yet they’re not without risk. One way to reduce the risk of such an allocation could be to invest in an index that takes ESG criteria into account in its construction process.

Lyxor has launched three new fixed income ETFs providing exposure to US dollar-denominated, euro-denominated, and global high-yield corporate bond markets while incorporating sustainability criteria. The funds are based on Bloomberg Barclays MSCI Sustainable SRI Indices and are being rolled out on the LSE and Borsa Italiana. Philippe Baché, Head of Fixed Income at Lyxor ETF, commented, “By applying an ESG lens to the high yield bond universe, we are able to provide a significant move away from parent indices offering a potentially more conservative risk profile.”

JP Morgan Asset Management has launched its first fixed income multi-factor ETF in Europe. The JPMorgan Global High Yield Corporate Bond Multi-Factor UCITS ETF provides exposure to a globally diversified portfolio of high-yield corporate bonds from issuers with strong value, quality, and momentum characteristics.