Bond ETF investors can also diminish their rate risk by shifting down the yield curve toward short duration bond ETFs. For example, the iShares 1-3 Year Treasury Bond ETF (NYSEArca: SHY) and SPDR Barclays 1-3 Month T-Bill (NYSEArca: BIL) have been popular Treasury bond ETF plays this year as bond investors adapt to a changing interest rate outlook. Year-to-date, SHY experienced $1.1 billion in net inflows while BIL attracted $1.4 billion in net inflows, according to XTF data.
SHY shows a 2.23% 30-day SEC yield and a 1.84 year effective duration. BIL has a 1.49% 30-day SEC yield and a 0.09 year duration. Duration is a measure of a bond fund’s sensitivity to changes in interest rates, so a low duration corresponds with lower sensitivity – a 1% rise in interest rates would translate to about a 1.84% decline in SHY and a 0.09% drop in BIL.
More aggressive traders may also incorporate a small bearish or inverse bond ETF strategy to a diversified fixed-income portfolio, such as the ProShares Short 20+ Year Treasury (NYSEArca: TBF), ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT), ProShares UltraPro Short 20+ Year Treasury (NYSEArca: TTT) and Direxion Daily 20-Year Treasury Bear 3X (NYSEArca: TMV).
For more information on the fixed-income markets, visit our bond ETFs category.