U.S. Treasuries are offering significant yields for the first time in more than a decade. In fact, the 10-year Treasury yield is the highest it’s been since 2007.
Still, investors are wary of the asset class. Considering the historically dire year fixed income had in 2022 — as well as the lackluster yields — this isn’t surprising. Per Vanguard, about 70% of advisor portfolios underweighted Treasuries compared with the Bloomberg U.S. Universal Index last year.
But the Federal Reserve raising interest rates has changed the outlook for Treasuries considerably. So, investors should consider reallocating some money into Treasuries to lock in yields that haven’t been this high in years. After all, these yields may not last.
“Yields on investment-grade corporate bonds may appear attractive relative to previous levels, but Treasuries still retain the edge because spreads between high-grade corporate and Treasury bonds remain thin,” according to Vanguard. “Treasuries also are more likely to offer stronger protection during a bear-market flight to safety.”
Vanguard offers a suite of three U.S. Treasury ETFs of varying durations. The Vanguard Short-Term Treasury ETF (VGSH) invests primarily in investment-grade U.S. Treasury bonds with a dollar-weighted average maturity of one to three years. The Vanguard Intermediate-Term Treasury ETF (VGIT), meanwhile, targets IG Treasuries with an average maturity of five to 10 years. And the Vanguard Long-Term Treasury ETF (VGLT) invests in Treasuries with an average maturity of 10 to 25 years.
All three funds have an expense ratio of 4 basis points.
‘Rock Solid and Very Dependable’
VettaFi’s vice chairman Tom Lydon called Vanguard “the Hoover of the ETF industry” for how it’s vacuumed up investor dollars.
“They are just rock solid,” he said. “They have so many choices. They’re low-cost and always very, very dependable.”
Vanguard’s CEO Tim Buckley said at Exchange 2023 that the firm’s goal is “to make sure we’re producing the top-performing funds and ETFs out there.”
“We’ll wrap it with low-cost, scalable advice and deliver them on a world-class, digitally enabled platform,” he added. “And if you do that well and you can keep improving it, you’ll create value into the future.”
For more news, information, and analysis, visit the Fixed Income Channel.