iShares, the exchange-traded funds platform of BlackRock, has launched the iShares Barclays Capital Euro Corporate Bond Interest Rate Hedged fund. It is, the firm said in a statement, the first ETF that offers physical corporate bond exposure and mitigated interest rate risk in a single fund.

This product is aimed, according to iShares, at investors who want a higher yield but are concerned about what may happen to corporate bond prices if the current low yield environment changes.

The firm points out that past strong performance - the Barclays Euro Corporate Bond Index increased 19.2 per cent in the past three years - can broadly be attributed to the performance of German government bonds, which make up approximately 14 per cent of the return; this is the interest rate risk component of this index.

The yield of German government bonds is now at a historic low. A potential future rise in yields could push up the corporate bond yield curve and ultimately lower corporate bond prices. The new ETF protects against such a potential upward shift by hedging out the inherent interest rate risk using German government bond futures.

“This new fund buys physical corporate bonds, and sells German government bond futures against those purchases, offering isolated credit exposure that allows investors to earn the extra corporate bond yield they are seeking,” explained Alex Claringbull, senior fixed income portfolio manager for iShares.