Yields have been pushing lower thanks to investors piling into safe haven assets like U.S. Treasury bonds amid the Russia-Ukraine conflict.
In the meantime, the capital markets are wondering how Russia’s invasion will affect the Federal Reserve’s decision to raise interest rates. Slower growth could induce less hawkishness.
“We believe that the outlook for Fed policy is far less certain now than prior to the outbreak of the conflict in Ukraine. On the one hand, inflation is likely to remain high or move higher due to the shock from the reduced supply of commodities to the global market. … However, commodity price shocks often reduce demand and slow growth longer term,” strategists from Charles Schwab said, according to a CNBC report.
Meanwhile, investors can pile into Treasury notes while limiting duration with 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.
This fund can be 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.
More Yield With Longer Duration
Investors willing to step further out on the yield curve can look to getting exposure to bonds with intermediate- and long-term maturities. One option is the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT) and another is the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT).
Up first is VGIT, which gives investors exposure to safer debt issues with Treasury notes. Per the fund description, 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. This index includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities between three and 10 years.
Next is VGLT, which 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.
For more news, information, and strategy, visit the Fixed Income Channel.