Treasury yields rose on Monday after the Federal Reserve raised interest rates by 50 basis points and indicated that more rate hikes were to be expected. The yield on the benchmark 10-year Treasury was up by 10.8 points at 3.59% on Monday, while the 30-year Treasury yield gained 11.4 basis points to 3.64%, and the yield on the 2-year Treasury note went up 8 basis points to 4.26%.
The Fed raised interest rates by 0.50% on Wednesday, as part of its ongoing campaign to curb high inflation. And while inflation does appear to be cooling, and the rate increase was lower than previous hikes (the Fed previously implemented four consecutive rate hikes of 75 basis points), Fed Chair Jerome Powell suggested that more increases were likely, and that rates will “have to remain high.”
“[T]here’s an expectation … that the services inflation will not move down so quickly, so that we’ll have to stay at it so that we may have to raise rates higher to get to where we want to go,” Powell said at a press conference Dec. 14. “And that’s really why we are writing down those high rates and why we’re expecting that they’ll have to remain high for a time.”
Investors looking to take advantage of the high yields on Treasuries may want to check out the Vanguard Short-Term Treasury ETF (VGSH), the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT), and the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT).
VGSH seeks to provide current income with modest price fluctuation, invests primarily in high-quality (investment-grade) U.S. Treasury bonds, and maintains a dollar-weighted average maturity of one to three years.
VGIT seeks to track the performance of a market-weighted Treasury index with an intermediate-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Treasury 3-10 Year Bond Index, which includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities between three and 10 years.
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, which includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities greater than 10 years.
These funds all carry an expense ratio of just four basis points.
For more news, information, and analysis, visit the Fixed Income Channel.