A rising unemployment rate pushed yields lower heading into the Labor Day Weekend, giving Treasury notes a boost to help ease an August correction that saw inflation fears re-emerge after a summer rally.
“Government bonds rallied Friday after a gentle rise in the unemployment rate eased investor concerns that the Federal Reserve’s efforts to cool inflation might have to shift into an even higher gear,” a Wall Street Journal report noted.
Bonds have been heading downward for most of the year before a summer rally heated up heading into the second half of 2022. August saw a return to form as yields rose once again, pushing prices down.
“The rally arrested an August downturn for bonds, which had worsened as traders worried about how high the Fed might raise interest rates and how long it might hold them there,” the report added.
Government Bond Exposure
Bond investors looking to get Treasury notes exposure have three prime options from Vanguard in the form of exchange traded funds (ETFs). Each fund can fit into an investor’s portfolio, depending on the type of exposure they seek as well as their risk profiles.
Given the current push to raise rates, short duration is still a prime option to consider. As such, fixed income investors can opt for the Vanguard Short-Term Treasury ETF (VGSH), which offers exposure to short-term government bonds, focusing on Treasury bonds that mature in one to three years.
Investors willing to step further out on the yield curve can look to getting exposure to bonds with intermediate- and long-term maturities. One option is the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT), and another is the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT).
Up first is VGIT, which gives investors exposure to safer debt issues with Treasury notes. 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.
Next is VGLT, which seeks to track the performance of a market-weighted Treasury index with a long-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Long Treasury Bond Index, giving investors an option to step further out on the yield curve in order to extract more yield while taking on more rate risk.
For more news, information, and strategy, visit the Fixed Income Channel.