Ahead of the Fed, Consider This Bond ETF

Treasury yields have been soaring following last month’s presidential election results and in anticipation of the Federal Reserve boosting interest rates when it meets next week.

Predictably, those scenarios have many fixed investors contemplating alternatives to traditional U.S. government debt exposure and junk bonds, among other fixed income assets.

The debt market has been reeling as bond yields rose. However, fixed-income investors can hedge against rising rates through alternative bond exchange traded fund strategies. An idea to consider, particularly for advisors and investors looking for ex-US bond exposure, is the Vanguard Total International Bond ETF (NYSEArca: BNDX).

Earlier this year, Pennsylvania-based Vanguard lowered the annual expense ratio on BNDX to 0.15% per year from 0.19%. BNDX is a currency hedged ETF, meaning it has the potential to deliver upside for investors as the dollar strengthens against foreign currencies.

Similar to what happened in the U.S. after the Federal Reserve’s quantitative easing policy, falling yields in fixed-income assets could push investors to riskier and higher-yielding assets in the Eurozone. In contrast, money managers are more pessimistic about U.S. Treasuries with the Fed normalizing interest rates ahead.