“We see this fund serving two primary purposes in an investor’s portfolio,” according to Morningstar analyst Timothy Strauts. “The first is that it is suitable as a component of the fixed-income allocation in a diversified portfolio. The other is as a safe haven for an investor’s funds during extreme market turmoil. This is because government bonds are negatively correlated with the stock market.”
Even as a safe-haven play, Treasury bond investors will have to weigh their tolerance to interest rate risk. Longer duration Treasury bond funds are more vulnerable to rising interest rates, but in return, investors may enjoy higher yields and potentially better returns in short-term, risk-off environments.
For more information on Treasuries, visit our Treasury bonds category.
Max Chen contributed to this article.