Fears of rising interest rates have abated somewhat this month. After yields on 10-year U.S. Treasurys touched 2.73% on July 5, they tumble to 2.5% on July 19. While an increase to 2.58% at last Friday’s close may not be alarming, that is still 45 basis points higher than what was seen at the start of June. That could be a sign to investors that the uptrend for interest rates is still in tact.
While interest rates have steadily declined over the past three decades, the recent rate spike has investors assuming, naturally, long-term Treasuries should fall – yields and bond prices have an inverse relationship, so a rising rate environment would correspond with declining bond prices. In the process, scores of rate-sensitive bond and sector ETFs have felt some, albeit temporary pain. [Rising Interest Rates Hurting These ETFs]
The good news is that there is no dearth of short duration ETFs on the market for investors to choose from in an effort to make their portfolios less vulnerable to rising long-term rates. On new ETF can help investors do just that while gaining some global exposure, too. The PowerShares Global Short Term High Yield Bond Portfolio (NYSEArca: PGHY) is that ETF.
PGHY debuted last month featuring the following credit quality allocations: BBB 3%, BB 48%, B 24%, CCC 3% and C 21%. Importantly, PGHY’s effective duration is just 1.68 years, highlighting the new ETF’s utility as a defensive play against rising long-term rates. Duration is a measure of a bond’s sensitivity to changes in interest rates – bond funds with lower durations would be less sensitive than higher duration bond ETFs. [PowerShares Launches Global Short Duration Bond ETF]