Take Advantage of High Treasury Yields With VTIP

Treasury yields rose Thursday as investors await key inflation data, with CNBC reporting that the 10-year Treasury yield went up by about nine basis points to 3.498%, while the 2-year Treasury yield climbed six basis points at 4.32%.

Recent economic data has given mixed messages, suggesting that inflation is going down while the job market remains strong (which could keep prices up). Investors and analysts are waiting to see how the Federal Reserve will move forward with interest rates. The U.S. central bank has issued four consecutive rate hikes of 75 basis points to curb persistently high consumer prices.

November’s producer price index data, which measures wholesale inflation, is expected to come out Friday. The Fed is expected to make a 50-basis-point rate hike at its December policy meeting next week. Many investors are worried that the Fed’s aggressive rate hikes will push the U.S. economy into a recession.

With inflation still stubbornly high and the Fed not yet indicating that it plans to pivot from its hawkish path toward raising rates, low-fee Treasury Inflation-Protected Securities ETFs could be an attractive option for fixed income investors. So, investors looking for some TIPS coverage while the bond market continues to face uncertainty may want to give the Vanguard Short-Term Inflation-Protected Securities ETF (VTIP) a closer look.

VTIP tracks the Bloomberg U.S. Treasury Inflation-Protected Securities 0-5 Years Index, investing in debt with a remaining maturity of fewer than five years and a mix of short-and-medium term duration, giving some protection against rising interest rates.

While shorter-dated Treasuries provide slightly lower returns, the safety of U.S. debt guarded against inflation and ongoing price hikes may prove appealing. Plus, VTIP also charges just four basis points.

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