Bond ETFs That Steer Clear Of Interest Rate Risk
Monday, 07 March 2011 05:24

Innovation in the bond ETF space in recent years has been truly impressive, resulting in the introduction of a number of products that allow investors to fine tune their fixed income exposure. While the most popular bond ETFs are those that offer broad-based exposure to a variety of issuers and maturities (such as AGG or BND), there are dozens of more targeted products that allow investors to focus in on specific risk factors while avoiding others altogether.

In the world of bond investing, the primary risk factors relate to the creditworthiness of the issuer and the duration of the fund. The concept of credit risk is fairly straightforward: the less likely an issuer is to repay its obligations, the higher yield investors will demand. While interest rates have little direct impact on the probability of default, they can have a significant impact on the demand (and therefor the market price)

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