Treasury yields are on the move higher as investors mull over whether a potential recession is forthcoming or not as interest rates continue to rise while the U.S. Federal Reserve tries to tame inflation. In the meantime, fixed income investors can grab yield with Treasury-focused ETFs from the short and long end of the yield curve.
“Investors are looking for indications about Federal Reserve policy, specifically whether the central bank will continue to hike interest rates,” a CNBC report noted. “Fears about rate hikes dragging the U.S. economy into a recession have been growing.”
Given the current market environment where the potential for more interest rate hikes are on the horizon, one ETF to consider is the Vanguard Short-Term Treasury ETF (VGSH). This ETF offers exposure to short-term government bonds, focusing on Treasury bonds that mature in one to three years.
This fund can be an ideal option given the uncertainty in the current market environment. Bonds can offer investors a safe haven against stock market volatility, while short-term bonds limit the risks of potential rate rises that can rob investors of fixed income opportunities.
Intermediate- and Long-Term Options
Additionally, investors willing to step further out on the yield curve can look to getting exposure to intermediate- and long-term maturities in Treasury notes. Two Treasury ETF options 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 exposes investors 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 ten 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.
This index includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities greater than ten years. Under normal circumstances, at least 80% of the fund’s assets will be invested in bonds included in the index.
For more news, information, and strategy, visit the Fixed Income Channel.