Bonds were in rough shape last year. But now, as everyone is saying, bonds are back. That’s because yields are back.
Investors are turning to Treasury ETFs because of their attractive yields and low risk. About a year ago, fixed income investors had to turn to high yield or private credit to get something yielding 4%. Now, investors can get 4% in U.S. Treasuries.
Sara Devereux, global head of the fixed income group at Vanguard, told Barron’s that the investment firm is “seeing a lot of flows” into its Treasury ETFs.
“I haven’t seen this kind of opportunity in a long time, after a decade of yields at the zero lower bound,” Devereux said.
See more: “Treasury Yields: A Long-Term Perspective”
Devereux also explained that Treasuries “are the purest diversification play if you have a portfolio heavy in equities.” They should also be a safe bet if the shallow recession that Vanguard is forecasting happens later this year.
“If we’re headed into a recession, typically these bonds will rally, but it also means credit risk is rising, which means corporate bonds can lag behind Treasuries in a rally,” she said. “Corporate bonds will have more correlation to the equity market.”
Hitting the Sweet Spot on the Treasury Curve
The Vanguard executive described the intermediate part of the Treasury curve as “the sweet spot.” For investors seeking this so-called sweet spot of five years, the Vanguard Intermediate-Term Treasury ETF (VGIT) may be worth considering.
VGIT seeks to track the performance of the Bloomberg U.S. Treasury 3-10 Year Bond Index. The index includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities between five and 10 years.
VGIT seeks to track the performance of the Bloomberg U.S. Treasury 3-10 Year Index. This index includes fixed income securities issued by the U.S. Treasury, with maturities between three and 10 years. It does not include inflation-protected bonds, floating-rate securities, or certain other security types.
The fund had a 30-day SEC yield of 3.76% as of June 6. It carries an expense ratio of 4 basis points.
For more news, information, and analysis, visit the Fixed Income Channel.