3 Treasury ETFs to Take Advantage of a Bond Rally

As yields start to slide amid the anticipation of interest rate cuts, Treasury bonds are rallying. That opens the pathway for investment opportunities in three Vanguard ETFs.

Of course, much of the bond market activity will hinge on what the Federal Reserve does with incoming economic data. If inflation trends in the right direction toward the 2% target inflation rate, that would bode well for bullish bond investors, particularly Treasuries.

“Inflation continues to move in the right direction,” said Jack McIntyre, a portfolio manager at Brandywine Global Investment Management. “As long as the Fed’s next move is to cut rates, you still want to own Treasuries.”

Investors may still want to opt for short-term bonds in the event of a Fed pivot. As such, for idealized exposure to short-term Treasury notes to mitigate rate risk, investors can consider using the Vanguard Short-Term Treasury ETF (VGSH). The fund offers ideal exposure to short-term Treasury notes. It focuses on maturity dates that fall within one to three years. Its 30-day SEC yield, as of May 30, is 4.95%.

An Intermediate and Long-Term Solution

To strike a balance between yield and mitigating rate risk, consider using an intermediate bond fund via the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT), For those seeking a long-term fund for higher yield, take a look at the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT).

VGIT uses 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 (excluding inflation-protected bonds) with maturities between three and 10 years. As of May 30, its 30-day SEC yield is 4.57%.

For investors looking to step out further on the yield curve to obtain more yield, VGLT is a prime option. The fund has a 30-day SEC yield of 4.78% as of May 30.

Overall, VGLT 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. It includes fixed income securities issued by the U.S. Treasury (excluding inflation-protected bonds) with maturities greater than 10 years.

For more news, information, and strategy, visit the Fixed Income Channel.