Short-term bonds have been the default play for some time as the U.S. Federal Reserve’s monetary tightening continues to play out, but investors could be returning to debt with longer maturity dates again, showing signs that bets are being placed on rate increases subsiding.
Yields have been falling as of late, which could portend to optimism that the Fed will indeed scale back on its seemingly relentless rate hiking. Either way, it’s a positive signs for bond investors who have seen the market mirror stocks for most of 2022 amid inflation fears and a potential recession.
“Treasuries were rallying Tuesday morning across the curve as some investors began to nibble at longer-dated bonds,” a CNBC report noted. “The 10-year U.S. Treasury Note, a bellwether for expectations about the economy and inflation, was yielding 4.09%, down sharply from its close Monday at 4.23%. Bond yields and prices move inversely.”
Short-term yields have been on the move lately, flashing signs of a potential recession via an inverting yield curve. If more investors pile into long-term bonds, that could help shift the tide.
2 Funds to Consider for Long-Term Bond Exposure
For investors who want to stay within the safe confines of government debt such as Treasury notes, but want the long-term exposure that can offer higher yields, consider the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT). The fund features a low 0.04% expense ratio.
The fund 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, which includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities greater than 10 years.
Corporate bonds are another option if fixed income investors who want to extract more yield. Of course, they’ll have to exchange that higher yield for more credit risk, especially when it comes to longer-term debt.
So for long-haul corporate bond exposure, consider the Vanguard Long-Term Corporate Bond Index Fund ETF Shares (VCLT). The fund seeks to track the performance of a market-weighted corporate bond index with a long-term dollar-weighted average maturity.
The fund, which also features a low 0.04% expense ratio, employs an indexing investment approach designed to track the performance of the Bloomberg U.S. 10+ Year Corporate Bond Index. This index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities greater than 10 years.
For more news, information, and strategy, visit the Fixed Income Channel.