Amid the Russian invasion of Ukraine, a sustained flight towards safety is ongoing as Treasury bonds continue to see interest from investors.
“Every time there is any form of risk, like we see a dinosaur approaching the cave, we store our goods in the safest place that we have,” said Paolo Pasquariello, professor of finance at the University of Michigan.
Right now, that safe spot is U.S. government debt. While it may not provide the yield of riskier debt, it’s ideal in the current market environment where uncertainty reigns.
“The U.S is not going to default on its debt, and it is a global market. So, anywhere anyone has concerns about equity markets or the economy, the U.S. Treasury market is the destination to go,” said Lawrence Gillum, a fixed income strategist with LPL Financial.
2 Options From Vanguard
Vanguard has a pair of options when looking at Treasury notes exposure. One is the Vanguard Short-Term Treasury ETF (VGSH), which provides a short duration focus.
This ETF offers exposure to short-term government bonds, focusing on Treasury bonds that mature in one to three years. It’s an ideal option, given the uncertainty in the current market environment.
Bonds can offer investors a safe haven against stock market volatility, while short-term bonds limit the risks of potential rate rises that can rob investors of fixed income opportunities. For more yield, there’s the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT).
VGIT straddles the line between obtaining yield and limiting duration. It’s an ideal option for bond investors who want more than what a short-duration bond ETF can offer in terms of yield, but not the rate risk that goes with stepping out further into the yield curve.
VGIT seeks to track the performance of a market-weighted Treasury index with an intermediate-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Treasury 3-10 Year Bond Index, which includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities between three and 10 years.
For more news, information, and strategy, visit the Fixed Income Channel.