Despite calls for rising interest rates, the recent bout of volatility triggered a massive shift into safe-haven assets, bolstering long-term fixed-income assets and bond-related ETFs.
Among the best performing non-leveraged, long-only bond ETFs of the past month, the PIMCO 25+ Year Zero Coupon US Treasury Index ETF (NYSEArca: ZROZ) rose 4.3%, Vanguard Extended Duration Treasury ETF (NYSEARCA:EDV) gained 4.2% and PIMCO 15+ Year U.S. TIPS Index ETF (NYSEArca: LTPZ) added 3.3%.
The PIMCO 25+ Year Zero Coupon US Treasury ETF tries to reflect the performance of the BofA Merrill Lynch Long US Treasury Principal STRIPS Index. Treasury STRIPS or Separate Trading of Registered Interest and Principal of Securities are debt securities sold at a significant discount to face value and offer no interest payments because they mature at par. ZROZ comes with a 2.76% 30-day SEC yield, a 27.42 year effective duration and a 0.15% expense ratio.
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The Vanguard Extended Duration Treasury ETF tries to reflect the performance of the Bloomberg Barclays U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index, which also includes a debt profile that provides exposure to the long-term Treasury STRIPS market. The fund shows a 3.01% 30-day SEC yield, a 24.5 average duration and a low 0.07% expense ratio.
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Lastly, the PIMCO 15+ Year U.S. TIPS Index ETF tries to reflect the performance of the long maturity Treasury Inflation-Protected Securities or TIPS market by tracking The BofA Merrill Lynch 15+ Year US Inflation-Linked Treasury Index. The fund tracks a type of Treasury security that is indexed to inflation as a way to shield investors from the negative effects of inflation. The securities’ par value rises with inflation as measured by the Consumer Price Index while interest rate remains fixed. TIPS also offer investors another layer of diversification as many aggregate bond funds exclude TIPS from their holdings. LTPZ has a 6.52% 30-day SEC yield, a 22.04 effective duration and a 0.20% expense ratio.
CNN Money reported on Wednesday the Federal Reserve will reach its inflation target in the near future, central bank policymakers suggested the path of future rate hikes could be “slightly steeper” over the next few years than previously thought, according to minutes of their March meeting released on Wednesday.
The Fed lifted the federal funds rate to a range of 1.5% to 1.75% in March.
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