While Federal Reserve is mulling over an interest rate hike, fixed-income investors have access to a number of exchange traded fund options available to create a diversified and flexible portfolio.
On the upcoming webcast, Fixed Income, Portfolio Construction and The Fed, State Street Global Advisors’ David Mazza, Vice President and Head of Research, Bill Ahmuty, V.P. of Fixed Income ETF Capital Markets & Institutional Sales, and Matthew Bartolini, Research Strategist, discuss a range of fixed-income strategies and potential plays through a Fed rate hike decision.
For instance, many have advised investors to go down the yield curve and hold bond funds with a lower duration to diminish rate risk – duration is a measure of a bond fund’s sensitivity to changes in interest rates, so a lower duration corresponds with a lower sensitivity to higher rates.
A re-weighted aggregate bond portfolio with a shorter duration to limit interest rate risk would include government debt exposure, such as the SPDR Barclays Short Term Treasury ETF (NYSEArca: SST) and SPDR Barclays Intermediate Term Treasury ETF (NYSEArca: ITE), and corporate bond exposure, including the SPDR Barclays Short Term Corporate Bond ETF (NYSEArca: SCPB) and SPDR Barclays Intermediate Term Corporate Bond ETF (NYSEArca: ITR), along with securitized debt through SPDR Barclays Mortgage Backed Bond ETF (NYSEArca: MBG).
SST has a 2.65 year duration and a 0.84% 30-day SEC yield. ITE has a 3.81 year duration and a 1.13% 30-day SEC yield. SCPB has a 1.95 year duration and a 1.69% 30-day SEC yield. ITR has a 4.38 year duration and a 2.72% 30-day SEC yield. Lastly, MBG has a 4.57 year duration and a 2.53% 30-day SEC yield.