As Treasury Yields Dip, Get Flexible With This Active ETF

The Federal Reserve reiterated forthcoming rate cuts as the central bank paused on any loosening of monetary policy just yet. This allows fixed income investors to take advantage of flexible bond funds now as Treasury yields dip further.

The central bank remained tight-lipped in the latest interest rate policy meeting about when actual rate cuts will take place. However, Federal Reserve Chairman Powell confirmed rate cuts will come as long as economic data corroborates with its 2% target inflation.

“We believe that our policy rate is likely at its peak for this type of cycle. [If] the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Powell said at the post-meeting news conference. “We are prepared to maintain the current target range for the federal funds rate for longer if appropriate.”

Following the decision to keep rates unchanged in the interim, Treasury yields retreated on the anticipation forthcoming rate cuts will come as originally planned. The move should appease bullish bond investors, as prices move inversely with yields. For fixed income investors looking to maintain current yield levels, it could mean the window of opportunity is getting smaller.

That said, it’s imperative to stay flexible in a bond market that could look very different six months from today. So investors looking to get core bond exposure, but still remain pliable in a changing bond market should consider the ALPS/SMITH Core Plus Bond ETF (SMTH).

Flexible Price Appreciation and Yield

SMTH seeks above-average total return from a combination of current income and capital appreciation. That investment goal speaks to the duality of high yields in the current environment. In effect, that paves the way for bond price appreciation when rate cuts finally occur.

This is where having the luxury of active professional managers who have the ability to adjust the fund’s holdings when a change is warranted can be beneficial. Thus, SMTH investors have peace of mind knowing they’ll have an ideal balance of yield and bond price appreciation. The fund has a 30-day SEC yield of 4.38%, as of February 29.

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