The Evergrande crisis in China has certainly grabbed the headlines of the financial market news cycle this year, but bond investors are now betting on a return for the struggling real estate developer.
It looks like institutional money is betting that the Chinese company will be able to right the ship in 2022. The property developer was in default on its debts, putting its bondholders at risk of default.
That said, Evergrande is willing to put its past behind it, and some bond investors agree. The company’s bonds represent a value proposition that investors can buy on the cheap in the hope that they will backfire.
“Some fund managers have bought bonds from the China Evergrande group in recent weeks as the property developer fell into default and prices hit record highs,” said a Wall Street Journal article said.
“Fund managers are betting that creditors will recover much more than current debt prices suggest, despite the likelihood of complex restructuring,” the article adds. âThe real estate company has $ 20 billion in international bonds outstanding, making it one of the largest distressed debt investments in the world, as low interest rates make investors look for ways to invest. ‘increase yields. “
Extract yield through longer duration
Fixed income investors don’t have to go with the riskiest debt when looking for more yield. They can stick with safe haven treasury bills that have extended terms that span 20 or 30 years in their maturity dates.
One such long-term ETF is the Vanguard Extended Duration Treasury Index Fund ETF Shares (EDV). In addition, it has a low expense rate of 0.07%.
According to the fund description, EDV seeks to track the performance of an index of zero coupon, extended duration US Treasury securities. The fund uses an index investment approach designed to track the performance of the Bloomberg US Treasury STRIPS 20-30 Year Equal Per Bond Index.
This index includes zero coupon US Treasury STRIPS securities that are guaranteed by the full confidence and credit of the US government, with maturities ranging from 20 to 30 years. The fund invests by sampling the index. At least 80% of its assets will be invested in US Treasury securities held in the index.
Strengths of the EDV:
- Seeks to track the performance of the Bloomberg US Treasury STRIPS 20-30 Year Equal Per Bond Index.
- Is passively managed using index sampling.
- Provides current income with high credit quality.
For more news, information and strategies, visit the website Fixed income channel.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.