“A first step is to assess the impact a rise in rates may have on your bond portfolio. ‘Duration’ is a term used to measure a bond’s sensitivity to changes in interest rates,” writes Kathy Jones, fixed-income strategist at the Schwab Center for Financial Research. “The concept is similar to maturity, in that longer-term bonds usually have longer durations and tend to be more volatile than shorter-maturity bonds. In general, the longer the duration of a bond, the more its market value is going to fluctuate with the interest-rate cycle.”
Here are some bond ETFs with shorter durations:
- iShares Barclays 1-3 Year Treasury Bond Fund (NYSEArca: SHY): effective duration of 1.87 years.
- PIMCO 1-3 Year U.S. Treasury Index Fund (NYSEArca: TUZ): effective duration of 1.87 years.
- Schwab Short-Term U.S. Treasury ETF (NYSEArca: SCHO): effective duration of 1.92 years.
- Vanguard Short-Term Government Bond ETF (NYSEArca: VGSH): effective duration of 1.9 years.
On the other hand, if you want to aggressively hedge against falling Treasury prices, you can take a look at inverse Treasury ETF options:
- ProShares Short 20+ Year Treasury (NYSEArca: TBF)
- ProShares Short 7-10 Year Treasury (NYSEArca: TBX)
- UltraShort Barclays 20+ Year Treasury (NYSEArca: TBT)
- UltraShort Barclays 7-10 Year Treasury (NYSEArca: PST)
- Direxion Daily 20-year Treasury Bear 3x (NYSEArca: TMV)
- Direxion 7-10 year Treasury Bear 3x (NYSEArca: TYO)
For more information on U.S Treasuries, visit our Treasury bonds category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own SHY.