As investors return back to fixed income in the second half of 2023, a shift from a short-term to a long-term rate strategy could be in the making.
In China, that’s already the case, according to a Bloomberg report. Demand for ultra-long government debt is increasing as investors think the government will scale back its economic stimulus measures, which may have a detrimental effect on the economy.
“The yields on China’s 15- and 20-year government bonds tumbled to the lowest since 2002 this week, while those for 30-year notes are hovering near levels unseen since 2005,” the report said. “Transaction volume for longer-dated securities has surged to a multi-year high.”
In the U.S., a short-term strategy was the prime option to mitigate rate risk as the Fed tightened monetary policy. However, a pivot to long-term rates opens options in the bond exchange-traded fund (ETF) fund world where Vanguard has options for ETF investors.
Long-Term Options on U.S. Treasuries
With an eye on long-term debt options, one fund to consider is the Vanguard Extended Duration Treasury Index Fund ETF Shares (EDV). EDV seeks to track the performance of an index of extended-duration zero-coupon U.S. Treasury securities, employing an indexing investment approach designed to track the performance of the Bloomberg U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index.
This index includes zero-coupon U.S. Treasury securities (Treasury STRIPS). They are backed by the full faith and credit of the U.S. government, with maturities ranging from 20–30 years. The fund invests by sampling the index.
If a duration of 20 to 30 years is too much potential rate risk for an investor to take on, consider the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT). The fund seeks to track the performance of a market-weighted Treasury index with a long-term dollar-weighted average maturity. It 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 10 years. The fund comes with a low 0.04% expense ratio and a 30-day SEC yield of 4.06%, as of July 13.
For more news, information, and strategy, visit the Fixed Income Channel.