High yields are applying downward pressure on both the stock and bond markets, confounding investors at the start of the second quarter. In turn, it’s causing traders to up their bearish bets on bond prices. But it presents an opportunity for value-seeking investors. As the Federal Reserve continues to mull interest rate cuts amid strong economic data, traders in Treasury bonds are betting the higher-for-longer inflation narrative will persist.
“Treasury bond traders have turned so bearish ahead of a key inflation report that they risk getting squeezed on a less than red-hot reading,” Bloomberg reported. “Funds that use borrowed money to amplify returns increased short positions in the Treasury futures market for the first time in two months amid the recent rise in US yields, weekly data from the CFTC shows.”
Bearish pressure on bond prices can in turn create dips that will allow retail investors to take advantage of the low prices. They can also obtain high yield and lock in interest rates now before the Fed finally loosens monetary policy.
To help mitigate any impending rate risk on the release of economic data that hints at continued inflation, bond investors may want to consider a short-term option via 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.
2 More Options in Treasuries
For a balance between rate risk and yield, there’s also the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT). The fund seeks to track the performance of a market-weighted Treasury index with an intermediate-term dollar-weighted average maturity.
It 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 (excluding inflation-protected bonds) with maturities between three and 10 years.
For more yield — albeit higher rate risk — investors can consider the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT). It seeks to track the Bloomberg U.S. Long Treasury Bond Index, which includes Treasuries with maturities greater than 10 years.
All three funds feature a low expense ratio of 0.04%. For yield seekers, 30-day SEC yields for all three are as follows:
| Fund | 30-day SEC yield (as of 4/9/2024) |
| Vanguard Short-Term Treasury ETF (VGSH) | 4.75% |
| Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT) | 4.35% |
| Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT) | 4.60% |
For more news, information, and strategy, visit the Fixed Income Channel.