LQD - LQDW: Taking Advantage Of Elevated Bond Volatility

2024-01-24 20:13:59 ET

Summary

• The iShares Investment Grade Corporate Bond Buywrite Strategy ETF has lost money since its launch in August 2022 due to rising yields and extreme volatility.
• The ETF should perform better in 2024 as high Treasury yields and implied volatility rates result in strong income, while the scope for large moved in yields has diminished.
• A renewed rise in inflation poses the main risk to the LQDW as it would put upside pressure on yields as well as potentially triggering a rise in volatility.

The iShares Investment Grade Corporate Bond Buywrite Strategy ETF ( LQDW ) seeks to track the investment results of an index that reflects a strategy of holding the iShares iBoxx $ Investment Grade Corporate Bond ETF ( LQD ) while selling one-month covered call options to generate income. Since it came to market in August 2022 it has actually lost money as losses on its LQD holdings have outweighed the impact of high income payments. We are likely to see a reversal of this performance in 2024 as high Treasury yields and rates of implied volatility result in strong income, while the scope for major directional moves that could cause the LQDW to decline and/or underperform the LQD has diminished....

For further details see: