Global Investors Wary of COVID Surge Can Spur Move to Treasuries

A resurgence in COVID-19 cases across Europe could spur a global move towards safe haven assets such as U.S. Treasury notes.

Just as the global market looks to recover from the pandemic, a risk-on sentiment could quickly turn back to risk-off as more cases spook investors.

“Global investors are also attentive to the latest developments surrounding the spread of the virus, as Covid-19 makes a resurgence across Europe and the United States,” said Han Tan, a market analyst at  ForexTime (FXTM). A country’s economic recovery is contingent on how well it can contain the coronavirus, as it is the health response of each country that forms the basis for its economic recovery.

“As long as major countries continue struggling to keep Covid-19 under control, such conditions make for an economic recovery that will merely hobble along, while ensuring that safe haven assets such as gold and US Treasuries remain well bid,” Tan added.

Two Treasury ETF Options From Vanguard

Fixed income investors looking for a long-term Treasury option can consider the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT). With its paltry expense ratio of just 0.05%, cost-conscious fixed income investors could have the fund they’re looking for in VGLT.

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.

This index includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities greater than 10 years. Under normal circumstances, at least 80% of the fund’s assets will be invested in bonds included in the index.

On the shorter side of the yield curve, getting less duration risk can protect fixed income investors should rates rise. The U.S. Federal Reserve is already eyeing 2022 as the year to start raising interest rates, which could erode bond income.

As such, one option worth considering is the Vanguard Short-Term Treasury ETF (VGSH). This ETF offers exposure to short-term government bonds, focusing on Treasury bonds that mature in one to three years.

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.

For more news, information, and strategy, visit the Fixed Income Channel.