Balanced Yield and Rate Risk With This Bond ETF

Fixed income investors these days may be tasked with looking for opportunities that can provide the best blend of yield, while at the same time mitigating rate risk. The melding of those two benefits is available in the Vanguard Intermediate-Term Bond ETF (BIV).

BIV offers a diverse portfolio of bonds within the dynamism of an ETF wrapper, while still offering increased credit quality with above 50% of its holdings in Treasuries. However, to add additional yield albeit increased credit risk, the ETF adds bonds rated A and BBB. The fund was listed as part of Morningstar’s choice selections in the intermediate bond range.

“The fund actually owns more government notes than its rivals but has benefited from a difference that appears further down the credit ladder,” Morningstar noted. “It holds twice as many A and BBB rated notes as do the other seven funds, which explains both its higher returns and income.”

BIV tracks the Bloomberg U.S. 5-10 Year Government/Credit Float Adjusted Index. That is a market-weighted bond index that covers investment-grade bonds with a dollar-weighted average maturity of that intermediate range of five to 10 years.

With interest rate cuts looming, it’s an ideal time for exposure to BIV while yields are still elevated. Additionally, it boasts a low expense ratio, like many of Vanguard’s bond ETFs do.

Fund 30-day SEC Yield (as of 4/11/24) Expense Ratio
Vanguard Intermediate-Term Bond ETF 4.87% 0.04%

2 More Intermediate Options

BIV can certainly give investors broad and diversified exposure to intermediate bonds. But given Vanguard’s suite of bond ETFs, they can also tailor their exposure to certain corners of the bond market. For instance, investors can opt for intermediate bond exposure in corporate bonds or strictly Treasuries.

Corporate bonds have presented attractive options in recent times for risk and even credit quality. Therefore, consider exposure to intermediate corporate debt with the Vanguard Intermediate-Term Corporate Bond ETF (VCIT). The fund seeks to track the performance of a market-weighted corporate bond index with an intermediate-term dollar-weighted average maturity. Intermediate exposure means that, like BIV, VCIT primarily focuses on high-quality corporate bonds with maturity dates that fall between five to 10 years.

To stay within the safe confines of U.S. government debt, investors will want to consider the Vanguard Intermediate-Term Treasury ETF (VGIT). The fund focuses on Treasury notes that once again fall within that five- to 10-year maturity-date window.

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