Inflation is showing early signs of retreating, which can be beneficial for rising bond prices. Nonetheless, even the best bond market prognosticators can’t predict what direction rates and yields head. That makes ETFs like the Vanguard Ultra-Short Treasury ETF (VGUS) and the Vanguard 0-3 Month Treasury Bill ETF (VBIL) worth contemplating.
These funds are ideal for minimizing exposure to interest rate sensitivity, which is inherent in the nature of ultra-short-term bond funds. Yields have been dropping as of late, allowing bond prices to rise, but that could prove temporary. Given the uncertainty in the market, it’s difficult to tell if the Federal Reserve will continue to ease monetary policy or stand pat if economic data is hotter than expected.
“The move in rates is entirely reasonable thus far given the policy uncertainty,” said Priya Misra, portfolio manager at JPMorgan Asset Management. “For the rally to continue, Tier One economic data needs to suggest that the economy is slowing.”
Even if bond prices continue to head higher, VGUS and VBIL can still capture that upside potential, albeit in the short term. Of course, one of the primary reasons for exposure is the yield these funds can offer for investors looking to grow their cash.
Alternatives to Money Market Funds
Money market funds can offer consumers a place to park cash while earning interest. However, ultra-short bond funds like VGUS and VBIL can offer even more competitive yields while, as mentioned, attaining upside from rising bond prices. This is especially helpful if rates fall, which isn’t a feature in money market accounts.
According to its fund description, VGUS tracks the Bloomberg Short Treasury Index. This comprises U.S. Treasury securities with less than 12 months to maturity. VBIL tracks the Bloomberg US Treasury Bills 0-3 Months Index. Both funds will appeal to cost-conscious investors, as they carry expense ratios of just 0.07%.
“These new ultra-short Treasury products serve as valuable tools for advisors and investors to build more precise and flexible portfolios, bridging the gap between money market funds and existing ultra-short-term bond offerings in the ETF wrapper,” said Sara Devereux, global head of Vanguard Fixed Income Group. “VGUS and VBIL reflect our drive to provide investors with a more diverse product range and complement our existing line-up of active and passive funds with Vanguard’s signature low-costs and management expertise.”
For more news, information, and strategy, visit the Fixed Income Channel.
