Investors Seeking Safety Are Flocking To These Bond ETFs In 2023

In a move that reflects investors fleeing stocks in search of safety, two exchange-traded bond funds are seeing their shares rally on Wednesday.

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AGW and VND have shown a strong performance Wednesday morning, both jumping by as much as 1.4%. They are enjoying their best day since November 10. Both ETFs have been up about 2.5% this year and have been up since early November.

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In spite of the gains in these funds, stock prices have slumped amid global fears around the banking sector, with Credit Suisse shares plummeting to begin the day. Further, traders sought to secure safe assets by buying up Treasury securities; yields have dropped as traders took advantage of the buying.

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While both BND and AGG offer broad exposure to U.S. investment grade bonds in an era in which credit quality is front of mind for investors, U.S. Treasurys, and other government bonds account for the largest part of their holdings in both ETFs, especially at a time when credit quality is a major concern.

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It should be noted that around 67% of the assets that are part of the BND portfolio have credit ratings deemed "U.S. government," which includes Treasury securities, U.S. agency bonds, and mortgage-backed securities backed by the U.S. government. AGG's holdings are mainly Treasury bonds that makeup 41% of the company's assets, followed closely by bonds issued by the Federal National Mortgage Association and the Government National Mortgage Association.

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The list of companies whose bonds are included in BND includes Amazon, AbbVie, and Alphabet, whereas the list of firms whose bonds are included in AGG includes Morgan Stanley, Bank of America, and JPMorgan Chase.