April's Sell-Off Opens Window of Opportunity for Bond Buyers

April’s sell-off isn’t dissuading investors from taking a closer look at adding bonds to their portfolio. The price dip is giving prospective bond investors a chance to take action on higher yields now before the U.S. Federal Reserve eventually cuts rates.

“A sharp sell-off in U.S. bonds so far in April is prompting some investors to consider allocating more funds to the asset class to lock in higher yields ahead of interest rate cuts by the Federal Reserve, a prospect that remains investors’ base case despite U.S. economic resilience,” Reuters reported.

The start of the second quarter has been pushing bond prices downward as Treasury yields surged, further pushing back the prospects of rate cuts happening sooner rather than later. As the Reuters report noted, benchmark Treasury yields for the 10-year bond have reached 5%, but may have peaked, signaling that a potential bottom for prices has been reached.

If that’s indeed the case, investors may want to consider using bond-f0cused exchange-traded funds (ETFs) to get exposure. One all-encompassing option to consider is the Vanguard Total Bond Market Index Fund ETF Shares (BND), which seeks to track the performance of the Bloomberg U.S. Aggregate Float Adjusted Index. That index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year. BND comes with a low expense ratio of 0.03%.

An Active Option for More Flexibility

For added flexibility in what’s been a more volatile bond market, active funds can be beneficial. With their expense ratios more competitive versus their passive counterparts in the current market environment, fixed income investors may want to consider active funds like the Vanguard Core Bond ETF (VCRB). As mentioned, active management helps maintain pliability, especially if the bond market becomes volatile. Furthermore, holdings come under the auspices of experienced portfolio managers.

Similar to BND, VCRB mitigates credit risk via diversified exposure to the U.S. investment-grade bond market. That doesn’t mean sticking strictly within the safe confines of U.S. Treasuries. Like BND, the actively managed VCRB extends its exposure to other fixed income assets for diversification, including mortgage-backed securities and corporate securities. Again, with the active exposure that VCRB offers, investors can harness the portfolio management capabilities of the Vanguard Fixed Income Group with only a 0.10% expense ratio.

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