U.S. Treasuries and bond-related ETFs strengthened toward the end of 2018 as investors looked to a safe haven to stabilize their investment portfolios, and this bond segment may continue to offer security if volatile spikes again this year.
“Uncertainty around key events is likely to stoke volatility, arguing for greater portfolio resilience in 2019. We prefer a barbell approach: exposures to government debt as a portfolio buffer on one side and allocations to assets offering attractive risk/return prospects such as quality and EM stocks on the other,” BlackRock Strategists, led by Richard Turnill, said in a research note.
In the current market environment, many anticipate the Federal Reserve to step back from its tightening monetary policy. The policymakers’ median rate expectations for 2019 dipped to two interest rate hikes from three in response to the latest “dot plot” projections due to a softer growth and inflation outlook.
After the recent pullback, asset valuations cheapened significantly over 2018, with equity valuations hovering back around post-crisis averages.
“We enter 2019 with less-demanding valuations and risks better reflected in many asset prices. Yet fears over an economic slowdown and trade conflicts loom large,” the BlackRock strategists said.
The lingering uncertainty has kept pressure on yields and propped up bond prices. Specifically, yields on benchmark 10-year Treasury notes are hovering around 2.7%, or its lowest level in almost a year.
If you are still worried about any further risks ahead, one may look to a Treasury bond ETF to provide a stabilizing factor for a diversified investment portfolio. For example, the iShares 7-10 Year Treasury Bond ETF (NASDAQ: IEF) and iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) offer exposure to intermediate- and long-term Treasuries.
Alternatively, those who are more wary of interest rate risks can move down the yield curve and pick out short-term Treasury exposures through ETFs options like the iShares Short Treasury Bond ETF (NASDAQ: SHV) and iShares 1-3 Year Treasury Bond ETF (NYSEArca: SHY).
For more information on the fixed-income market, visit our bond ETFs category.