Bill Gross, who built a legendary career on bonds, isn’t looking at stocks, bonds, or commodities amid this inflationary environment. One thing does stick out though: Treasury bills.
“Be patient. 12-month Treasuries at 2.7% are better than your money market fund and almost all other alternatives,” said Gross, per a Bloomberg report that noted his recent views on the current market.
As the Federal Reserve looks intent on keeping rates elevated to tamp down inflation, a recession is potentially on the horizon. As such, Gross advises investors to stay away from stocks for now.
“Don’t buy them,” Gross wrote. “Stocks must contend with future earnings disappointments and are not as cheap as they appear. Don’t buy them just yet.”
Vanguard has a pair of options for investors looking to get exposure to Treasury notes while limiting duration to address interest rate risk. One option is the Vanguard Short-Term Treasury ETF (VGSH), which offers exposure to short-term government bonds, focusing on Treasury bonds that mature in one to three years.
It’s 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.
Overall, VGSH:
- Seeks to provide current income with modest price fluctuation.
- Invests primarily in high-quality (investment-grade) U.S. Treasury bonds.
- Maintains a dollar-weighted average maturity of one to three years.
Get More Yield
For fixed income investors looking to step further out on the yield curve to extract more yield, they can consider the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT).
With a focus on intermediate term debt, VGIT straddles the line between obtaining yield and limiting duration. It’s an ideal option for bond investors who want more than what a short-duration bond ETF can offer in terms of yield, but not the rate risk that goes with stepping out further into the yield curve.
Per the fund description, VGIT seeks to track the performance of a market-weighted Treasury index with an intermediate-term dollar-weighted average maturity and 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 10 years.
For more news, information, and strategy, visit the Fixed Income Channel.