Consequently, the two ETFs have relatively no duration risk. Specifically, HYHG has an effective duration of -0.3 years and IGHG has an effective duration of -0.1 years – duration is a measure of a bond fund’s sensitivity to changes in interest rates. If interest rates were to rise 1%, HYHG would actually rise about 0.3% and IGHG would gain 0.1% due to their short Treasury positions.
Nevertheless, potential investors should be aware that these types of zero-duration, hedged bond ETFs may underperform a non-hedged version if rates decline.
Looking further out, these types of hedged-bond ETFs could provide suitable exposure to the fixed-income market in a rising interest environment, especially as the Federal Reserve plans on hiking rates sometime later this year.
For more information on the fixed-income market, visit our bond ETFs category.
Max Chen contributed to this article.