As the growth outlook strengthens and the Federal Reserve responds with a tighter monetary policy, bond ETF investors will have to adapt to the changing market environment.

“Tax cuts and plans for more government spending are turning past headwinds to U.S. growth into tailwinds,” BlackRock Strategists, led by Jeffrey Rosenberg, said in a research note. “One result: The market has now caught up with the median interest rate path projected by Federal Reserve policymakers.”

Related: As Expected, Federal Reserve Delivers Rate Increase

Consequently, BlackRock now sees opportunities toward the front end of the yield curve, notably short-term debt.

“We see short-term U.S. debt offering relatively compelling income, with limited downside risk: Three Fed rate hikes are already priced in for this year, with the first likely this month,” the BlackRock strategists said. “Markets could price in one additional quarterly hike after that Fed meeting (making a total of four for 2018), but we see a more rapid pace as unlikely.”

Furthermore, technical factors like higher U.S. Treasury bill issuance due to a rising federal budget deficit are also adding to the factors pushing short-term yields higher. As a result, short-term Treasuries may provide positive real yields for the first time since the financial crisis, with income sufficient to offset inflation.

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