U.S. Treasury yields rose after strong jobs data was reported on Thursday. Per CNBC, the yield on the benchmark 10-year Treasury gained 1 basis point to 3.718%, while the 2-year Treasury yield was trading 7.3 basis points higher to about 4.46% around the same time.
This rise in yields came after ADP reported that private sector employment increased by 235,000 jobs in December and annual pay was up 7.3% year-over-year. This is well above the 127,000 initially reported for November and the Dow Jones estimate of 153,000.
While some investors think this strong labor data could lead the Federal Reserve to ease up on raising interest rates to curb inflation, Fed officials expect higher interest rates to remain in place until record-high inflation has been down significantly, according to recently released minutes from the U.S. central bank’s December meeting. While inflation has come down, it’s still well above the Federal Reserve’s target of 2%, so rate hikes will continue for the foreseeable future.
“We continue to anticipate that ongoing increases will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time,” said Fed Chair Jerome Powell during the Fed’s December 14 press conference. “Restoring price stability will likely require maintaining a restrictive policy stance for some time.”
The Fed raised interest rates by 50 basis points in December after four consecutive rate hikes of 0.75%. The minutes noted that no members of the Federal Open Market Committee expect rate cuts in 2023.
Investors looking to take advantage of the rising 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.