Advisors don’t need to look to the long end of the yield curve to find compelling opportunities for clients. Many investors think they need to extend duration in the current environment. However, Jason Bloom, Invesco’s head of fixed income and alternatives ETF Product Strategy, told VettaFi he currently sees the greatest opportunity in BulletShares ETFs in the two- to five-year maturity range.
“In the current environment, we’re moving into a new regime. I don’t think the playbook here is to buy 10-year Treasuries,” Bloom said. “It’s to buy the two- to five-year part of the curve, higher quality.”
If the Fed starts cutting rates next year, Bloom said keeping duration to two to five years could offer capital appreciation potential. Rates in that two- to five-year range could go from 4.5% down to 3.75%, he added.
Conversely, the long end of the yield curve might be anchored while the front end of the curve falls. The U.S. could adjust to an environment where the Fed Funds equilibrium is 3.75% or 3.5% instead of the 2.25% in the last decade. This would be much more consistent with the 20 years prior to the financial crisis, Bloom said.
How to Get Exposure in the 2- to 5-Year Maturity Range
As investors look to capture fixed income opportunities, Bloom said he has seen a lot of interest in the BulletShares ETFs lineup in the 2026, 2027, and even 2028 vintages.
Right now, as investors are largely favoring investment grade, this includes the Invesco BulletShares 2026 Corporate Bond ETF (BSCQ), the Invesco BulletShares 2027 Corporate Bond ETF (BSCR), and the Invesco BulletShares 2028 Corporate Bond ETF (BSCS).
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