Bond investors who want more yield amid rising rates while also shortening duration can opt for a middle ground with intermediate bonds — or specifically, the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT).
VGIT walks the fine line between obtaining yield and limiting duration. As mentioned, it gives bond investors an option if they desire 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 with long-term bonds.
Additionally, VGIT gives investors exposure to safer debt issues with Treasury notes for risk-averse investors. Per the fund description, 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. This index includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities between three and 10 years.
“This ETF offers exposure to intermediate term government bonds, focusing on Treasuries that mature in three to ten years,” an ETF Database analysis says. “As such, interest rate exposure for this product will be moderate; VGLT offers exposure to longer-dated Treasuries while VGSH is an option for those looking to focus on the short end of the maturity curve.”
More Yield With Corporate Bonds
Investors looking to get more yield and are fine with accepting more credit risk can opt for corporate bonds. Specifically, they can look at the Vanguard Interim-Term Corporate Bond ETF (VCIT).
VCIT seeks to track the performance of a market-weighted corporate bond 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. 5–10 Year Corporate Bond Index, which includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities between five and 10 years.
Product summary via Vanguard’s website:
- Seeks to provide a moderate and sustainable level of current income.
- Invests primarily in high-quality (investment-grade) corporate bonds.
- Moderate interest rate risk, with a dollar-weighted average maturity of five to 10 years.
- 30-day SEC yield (as of February 11): 2.74%
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