Buying Investment-Grade U.S. Bonds

Investment-grade bonds have been surprisingly strong performers this year in defiance of conventional wisdom.

One way to take advantage of rising bond prices is through the iShares Core U.S. Aggregate Bond ETF (AGG), an exchange-traded fund (ETF) that focuses on investment-grade U.S. bonds. As its name implies, the ETF invests in U.S.-based bonds such as Treasuries and high-quality corporate bonds.

With $43.83 billion in total assets, a daily trading volume of $265.3 million and a whopping 6,203 total holdings in its portfolio, AGG is an enormous fund. However, it operates with high efficiency and high liquidity, boasting an expense ratio of only 0.05%, which is considerably lower than most of its rivals.

AGG maintains its liquidity by only lightly investing (about 11%) in long-term bonds that have a maturity date of 20 years or more. Instead, 85% of AGG’s bonds have a maturity date of less than 10 years.

A bond is considered investment grade, if its credit rating is BBB- or higher, as determined by Standard & Poor’s. Roughly 72% of bonds held by AGG are AAA rated, and about 28% are rated in the range of AA to BBB.

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