As more shy away from safe-haven bets and markets anticipate a tighter monetary policy out of the Federal Reserve ahead, fixed-income investors may be up against an uphill battle, facing a rising interest rate environment. Nevertheless, there are targeted bond exchange traded strategies catered to fight against rate risk.
With yields on benchmark 10-year Treasury bonds creeping higher on diminished demand for safe haven assets, investment-grade debt has slipped. Since the April 18 low, yields on 10-year Treasury notes have risen a little over 20 basis points to 2.407%.
Meanwhile, popular bond ETF plays, like the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD), have dipped – LQD fell 0.1% over the past week.
ETF investors, though, can consider rate hedged ETF strategies to eliminate the rising rate risks. For instance, the ProShares Investment Grade-Interest Rate Hedged ETF (BATS: IGHG) gained 0.7%.
Similarly, investors interested in high-yield, speculative-grade debt can also look at the ProShares High Yield Interest Rate Hedged ETF (BATS: HYHG) for a rate hedged junk bond play.
“Short-term bond funds are not the only answer to rising rates,” ProShares said in a note. “Another – perhaps better – way to remain invested in bonds is to remove the interest rate risk entirely with a build-in hedge. If rates continue to rise, now may be a good time to prepare with an interest rate hedged bond ETF.”