Long-Term Bond ETFs Prove Durable Despite Fed Rate Hikes

EDV and the rival PIMCO 25+ Year Zero Coupon US Treasury (NYSEArca:ZROZ) are benefiting because longer-dated bonds are more sensitive to hawkish changes in interest rates, meaning the longer the Fed stands pat, the more compelling the higher yields on these ETFs are because rate risk is diminished.

Related: 14 Hedged Bond ETFs for a Rising Rate Environment

Weighing on Treasury yields and bolstering bond prices, the tepid inflation numbers outweighed traders’ concerns over the Fed’s announced quarter-point rate hike and plans to reduce its balance sheet this year.

“The 25Yr STRIP index had a higher rate of return than VFINX, Vanguard’s flagship U.S. stock mutual fund. This is because of steadily falling bond yields during the last 30 years. This will likely not be the case in the future – the Fed is currently seeking to gradually hike the Fed funds rate, which will pressure yields of long-maturity bonds to rise,” according to Seeking Alpha.

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