4 Corporate Bond Options as Credit Spreads Tighten

More rate cuts are forecasted for 2026, which could bring further tightening in credit spreads for fixed income investors pondering whether they should opt for corporate bond options for added yield in lieu of or alongside Treasuries exposure. If so, Vanguard has four options to consider as the idea of exposure to this sector becomes even more compelling.

Tightening spreads is also proof that the outlook for bond fundamentals have improved. Some also view them as safer bets than government debt, giving them even more appeal as their risk premium is relatively low compared to previous years.

For core corporate bond exposure, the Vanguard Total Corporate Bond ETF Shares (VTC) can work alongside a fixed income portfolio that currently has a targeted focus on mostly Treasuries. Because the fund tilts towards investment-grade, it can appease those who want to maintain their Treasuries exposure and use corporate bonds as a complementary addition for added yield.

VTC tracks the performance of the Bloomberg U.S. Corporate Bond Index. That index exposes investors to investment-grade, fixed-rate, and taxable corporate bonds. AS of November 30, it has a 30-day SEC yield of 4.8%. Furthermore, the fund carries a low expense ratio of 0.03%, or $3 per every $10,000 invested.

Short and Medium Duration Corporate Bond Funds

Short-term bonds can be used as a means to mitigate any rate risk, and in the pool of corporate bond ETF options, the Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH) emerges as an ideal candidate. It tracks the performance of the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index, adding exposure to mostly A and BBB rated investment-grade bonds.

Intermediate bonds can offer an ideal median between balancing rate risk and attaining higher yield. With that, fixed income investors should take note of the Vanguard Interim-Term Corporate Bond ETF (VCIT). VCIT tracks the Bloomberg U.S. 5-10 Year Corporate Bond Index. That index includes U.S.-dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies.

Both of these funds feature a low 0.03% expense ratio, or $3 per every $10,000 invested.

Go Long!

Those who aren’t fazed by the added rate risk can also opt to go further out on the yield curve with long-term bonds. If that’s the case, consider the Vanguard Long-Term Corporate Bond Index Fund ETF Shares (VCLT). The fund was recently mentioned in Yahoo! Finance as a viable alternative to a long-term Treasury ETF option. It was also lauded for its low expense ratio and of course, yield. As of December 4, its 30-day SEC yield is 5.61%.

VCLT tracks the Bloomberg U.S. 10+ Year Corporate Bond Index. This index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities greater than 10 years.

Like all the aforementioned funds, it features an inexpensive 0.03% expense ratio—a Vanguard hallmark with its tradition of offering low-cost, indexed funds.

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