The first trading day of the new year saw benchmark Treasury notes ring in 2022 with bearishness with global bonds dropping across the board.
“The benchmark 10-year Treasury yield rose by nearly 0.13 percentage points, exceeding 1.6 per cent for the first time since the emergence in late November of the Omicron strain of coronavirus, which sent yields tumbling,” reports the Financial Times. “It marked one of the biggest Treasury sell-offs over the past year.”
The equities market fared better with the Dow Jones Industrial Average (DJIA) rising almost 250 points. Meanwhile, global bonds made history, but not in a good way.
“Monday’s market moves followed the worst year for global bonds since 1999 after central banks signalled that they were prepared to combat inflation pressures with interest rate rises,” the Financial Times adds.
“With speculative spirits high, investors will need to gauge return per unit of risk as volatility reappears,” said Sean Darby, an analyst at Jefferies. “Perhaps equity investors should be more concerned that policymakers might get boxed in by trying to tame inflation with higher rates without upsetting asset markets.”
2 Treasury ETF Options From Vanguard
Bond investors sensing value in the Treasury notes market can use ETFs from Vanguard. Whether it’s the long or short end of the yield curve, Vanguard has tangible options for bond investors.
On the long end, there’s the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT). With its paltry expense ratio of just 0.05%, cost-conscious fixed income investors could have the fund they’re looking for in VGLT.
VGLT seeks to track the performance of a market-weighted Treasury index with a long-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Long Treasury Bond Index.
This index includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities greater than 10 years. Under normal circumstances, at least 80% of the fund’s assets will be invested in bonds included in the index.
On the shorter side of the yield curve, getting less duration risk can protect fixed income investors when rates rise. The U.S. Federal Reserve is already eyeing 2022 as the year to start raising interest rates, which could erode bond income.
As such, one option worth considering is the Vanguard Short-Term Treasury ETF (VGSH). This ETF offers exposure to short-term government bonds, focusing on Treasury bonds that mature in one to three years.
Overall, VGSH:
- Seeks to provide current income with modest price fluctuation.
- Invests primarily in high-quality (investment-grade) U.S. Treasury bonds.
- Maintains a dollar-weighted average maturity of one to three years.
For more news, information, and strategy, visit the Fixed Income Channel.