Consequently, Boccellari argues that a floating-rate bond ETF may be a good fit ahead while intermediate-term bonds may be at risk.
For instance, the iShares Floating Rate Bond ETF (NYSEArca: FLOT) automatically adjust their coupons at periodic intervals in response to changes in the interest rates. FLOT essentially has an effective duration of 0.14 years.
Intermediate-term bond ETFs, like the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG), which has an effective duration of 5.25 years, are particularly sensitive to the upcoming rate environment.
“While they have less sensitivity to interest rates than long-term bond funds, intermediate-term interest rates have historically increased more in rising interest-rate environments as the yield curve flattens,” Boccellari said.
Some investors may be tempted to dive into short-term bond ETFs for protection. However, Boccellari advises people to consider costs since fees may end up eating away at yields. For example, the SPDR Barclays 1-3 Month T-Bill (NYSEArca: BIL) shows a flat yield with a 0.13% expense ratio. [No Free Lunch with Ultra-Short-Term Bond ETFs]
For more information on the fixed-income market, visit our bond ETFs category.
Max Chen contributed to this article.