With rising interest rates widely expected to continue this year, some fixed income strategies and exchange traded funds merit additional consideration.
While the Federal Reserve has raised rates multiple times over the past several years, the central bank’s pace of rate hikes has been slow. In fact it “represent(s) one of the flattest Fed hiking trajectories in their monetary tightening history. It has taken the Fed 910 days to raise the benchmark rate 1.75%, far longer than the 559 days, on average, that it took them to move the Fed Funds rate 1.75% in the previous four rate hike cycles,” said State Street Global Advisors (SSgA) in a recent note.
The SPDR Portfolio Short Term Treasury ETF (NYSEArca: SPTS) offers investors one way of dealing with the Fed’s rate hike trajectory. The $480.76 million SPTS tracks the Bloomberg Barclays 1-3 Year U.S. Treasury Index and has an option adjusted duration of just 1.91 years.
SPTS can be paired with funds such as the SPDR Portfolio Long Term Treasury ETF (NYSEArca: SPTL) to deal with the Fed’s efforts at avoiding an inverted yield curve.
“Given that the Fed is expected to hike rates at least once more in 2018, that issues constricting long-term yields are not likely to be solved quickly and that aging investors are allocating more capital to bonds, the trajectory of the yield curve is likely to only be flatter, not higher,” said SSgA.
Senior Loans, Too
Senior loan funds, including the SPDR Blackstone/GSO Senior Loan ETF (NYSEArca: SRLN), can help investors thrive during the current interest rate climate.