Monday’s trading session saw benchmark Treasury yields dip lower, giving fixed income investors some confidence amid rampant inflation. Now, all eyes are on the Fed and how hawkish it’ll get as more economic data is released.
“The ugly trend of inflation is why the Federal Reserve is poised to hike interest rates by a half percentage point in May and begin letting their bond portfolio run off,” said Greg McBride, chief financial analyst at Bankrate. “The Fed will be pressing firmly on the brake pedal – not just pumping the brakes – in an effort to slow demand and bring the inflation rate back down.”
Right now, with the expectation of rising interest rates, investors who want to opt for safe haven Treasury exposure can go with shorter duration. One exchange traded fund (ETF) to consider is the Vanguard Short-Term Treasury ETF (VGSH).
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.
2 More Options
For more yield, investors can opt for longer duration if they’re willing to take on rate risk. If so, they can opt for the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT). 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.
Fixed income investors who want a happy median can opt for the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT). It’s an ideal option for bond investors who want more than what a short-duration bond ETF can offer in terms of yield, but not the rate risk that goes with stepping out further onto the yield curve.
VGIT gives risk-averse investors exposure to safer debt issues with Treasury notes. Per the fund description, 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. This index includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities between three and 10 years.
For more news, information, and strategy, visit the Fixed Income Channel.