While it appears to be safe to add duration to investors’ fixed income portfolios, there’s still reason to be cautious. Or at least, defensive. So, for advisors looking to defensively construct their portfolios, intermediate municipal bonds may be just what they’re looking for.
Despite industry observers saying that bonds are back, fixed income markets and interest rates have still been volatile this year. And while the Federal Reserve paused its rate hikes in June, the Fed is unlikely to lower rates anytime soon. While having dropped from its 9% peak last June, inflation could be stickier than it’s been in a long time.
While many advisors are becoming a little more risk-on with duration, they’re not ready to go full long duration. That’s where the Vanguard Tax-Exempt Bond ETF (VTEB) can come into play.
VTEB targets investment-grade U.S. muni bonds by tracking the Standard & Poor’s National AMT-Free Municipal Bond Index. Its holdings, which consist of 7,419 bonds, have an average duration of 5.8 years. The fund yields 3.45% on a 30-day SEC basis as of June 26.
“We’ve seen growing demand for fixed income ETFs in general,” said Jeff Johnson, head of fixed income products at Vanguard. “But within fixed income, there’s been particular excitement and greater demand for munis.”
VTEB has an expense ratio of 5 basis points.
For more news, information, and analysis, visit the Fixed Income Channel.