UBND has a weighted average coupon of 5.19% and an average years to maturity of 11.47 years. Indicating that the ETF is right for a time in which fixed income investors are increasingly skittish of changes in Federal Reserve policy, UBND’s effective duration is zero. [Alternative Bond ETFs for a Rising Rate Environment]
Zero duration ETFs hold long-term bonds, but they will take short positions in Treasuries or Treasury futures contracts to hedge against potential losses if interest rates rise. The short positions would essentially diminish the funds’ duration – a measure of sensitivity of the price of a fixed-income asset to changes in interest rate risks, so a low duration would translate to a smaller sensitivity to shifting rates. Moreover, as yields have been inching higher and Treasury bond prices fell over recent weeks, the short Treasury positions helped bolster returns in the rate-hedged bond ETFs. UBND holds short positions on 10-year Treasury futures and long-term Treasury futures. [Fixed-Income ETFs That Beat Interest Rate Risk]
“As the Federal Reserve (Fed) looks to lift rates for the first time in nearly a decade, we believe that interest rate risk is likely to serve as a headwind rather than a tailwind going forward. In this investment environment, investors should ask themselves if the Agg’s current composition is reflective of their investment goals. As government issuance has risen in the United States, will this subset of the market offer compelling opportunities for income given the current interest rate environment? Put simply, an index is a reflection of issuance, not value,” according to WisdomTree.
UBND’s 40 long positions are mostly highly rated with 28.3% of the fund’s weight rated BBB and another combined 28.1% rated AA or A.