Following a historically rough year for fixed income, the asset class is looking up. Throughout 2022, yields on bond investments went up by two to four percentage points (depending on the category). For example, investors can get 4% on short-term Treasuries.
Treasury yields rose on Thursday (and again on Friday) after the U.S. Department of Labor reported that initial filings for unemployment insurance fell to their lowest level since late June, suggesting to investors that the U.S. labor market is still going strong despite a bear market and high inflation.
Treasury yields rose early Friday, with 2- and 10-year yields coming off roughly four-month lows. As reported by MarketWatch, the yield on the 2-year Treasury note rose 5 basis points to 4.173%, the 10-year climbed 3.7 bps to 3.438%, and the 30-year went up 4.2 bps to 3.608%.
“Treasuries offer reasonable yields for the first time in more than a decade,” according to Barron’s. “They provide a hedge against a drop in the stock market while offering appreciation potential if inflation continues to recede.”
For investors looking for bond funds that offer decent yields that can mitigate their risk exposure, the Vanguard Short-Term Treasury ETF (VGSH), the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT), and the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT) may be worth looking into.
VGSH seeks to provide current income with modest price fluctuation, invests primarily in high-quality (investment-grade) U.S. Treasury bonds, and maintains a dollar-weighted average maturity of one to three years.
VGIT seeks to track the performance of a market-weighted Treasury index with an intermediate-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Treasury 3-10 Year Bond Index, which includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities between three and 10 years.
VGLT 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.
These funds carry an expense ratio of just four basis points.
For more news, information, and analysis, visit the Fixed Income Channel.