Afraid of Rising Rates? — Consider These Bond ETFs
March 28th, 2012 at 8:00am by Tom Lydon
Treasury prices are falling and yields are rising, but exchange traded fund investors can mitigate the hit in their bonds all0cations if they move down to short-end of the yield curve.
Interest rates at various points on the yield curve are hovering around their historic lows, with the benchmark 10-year Treasury providing a 2.20% yield, writes Roger Nusbaum for TheStreet.
Bond prices and yields have an inverse relationship. If yields are at historic lows, then prices must be relatively high. However, over the past couple of weeks, longer-dated bonds, such as those on the 10-year and even 20+ year notes, have experienced slowly tumbling prices and higher rates. [Is It Finally Time to Short Treasuries with ETFs?]
Considering the extremely loose Fed monetary policies coupled with the extensive quantitative easing programs, higher interest rates is an inevitable road we will have to deal with.
ETF investors, though, may utilize funds with short-term maturities to help mitigate the risk since shorter-dated bonds are less price sensitive to interest rate moves.
- iShares Barclays 1-3 Year Treasury Bond Fund (NYSEArca: SHY)
- iSharesBarclays 3-7 Year Treasury Bond Fund (NYSEArca: IEF)
Short-term corporate bonds:
- iShares has the Barclays 1-3 Year Credit Bond Fund (NYSEArca: CSJ)
- S&P/Citigroup 1-3 Year International Treasury Bond Fund (NYSEArca: ISHG)
- SPDR Barclays Capital Short Term High Yield Bond ETF (NYSEArca: SJNK)
- Guggenheim BulletShares 2015 Corporate Bond ETF (NYSEArca: BCSF)
Short-term muni bonds:
- iShares 2014 S&P AMT Free Municipal Series (NYSEArca: MUAC)
For more information on bond funds, visit our bond ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.