The potential for higher interest rates is putting assets like the Vanguard Short-Term Treasury ETF (VGSH) in the spotlight.

Meanwhile, the Federal Reserve is trying its best to ease markets that have been volatile as of late. An improving economy is causing market experts to wonder whether the recovery is running too hot, which could prompt the Fed to shift its stance on rates.

Last year, the Fed pushed yields lower thanks to a spate of bond purchases at the height of the pandemic. Now, rates could push higher as the central bank looks to ease off on its bond purchasing.

“We are talking about talking about tapering,” said San Francisco Federal Reserve Bank President Mary Daly.

“I want to make sure that everyone knows that it’s not about doing anything now,” Daly added. “Right now, policy is in a very good place….we need to be patient.”

Meanwhile, fixed income investors can protect themselves from rising rates by limiting duration risk. With ETFs like VGSH, investors can grab safe haven exposure to government debt.

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 1 to 3 years.

VGSH Chart

For more news, information, and strategy, visit the Fixed Income Channel.