Investors have been pumping money into U.S. Treasuries for months. They’re expected to continue doing so for the next 12 months.
And why not? At a panel on VettaFi’s Fixed Income Symposium, BondBloxx co-founder Joanna Gallegos pointed out that they’ve been a great alternative to cash. Plus, they’re a great way to capture as much yield as possible.
“It’s hard to walk away from a 5% risk-free yield,” Gallegos said.
Fellow panelist Alexander Morris, chief investment officer and chief operating officer at Diffractive Managers Group, agreed. “It’s a risk-free investment,” he said.
With more investors increasing their allocation to Treasuries, moderator Todd Rosenbluth, VettaFi’s head of research, asked why investors should use Treasury ETFs rather than invest directly in the bonds. Morris said that investing directly in Treasuries is “relatively hard to do.” Not only is there no exchange making this happen, but trading them also comes with embedded costs and added fees.
“It’s very time-consuming and hard to do,” Morris said. “ETFs answer a lot of that.”
Gallegos said that ETFs provide convenience and workflow. She noted that many Treasury ETFs on the market prior to the formation of BondBloxx fluctuated in cost and duration. This is why BondBloxx launched eight duration-specific U.S. Treasury ETFs that offer a more precise, lower-cost way to get exposure to Treasuries.
Intermediate and Longer
Looking ahead to six months out, Morris said that flows will accelerate within the middle end of the curve (namely, three-, five-, and seven-year durations). He also noted that 10-year Treasuries may get more attention as well. This is because so much of the global infrastructure functions off the 10-year duration, like mortgages and car loans.
Gallegos said that she’s also seen investors currently going into intermediate Treasuries and longer. So, in this environment, she said it makes sense to focus on Treasuries. If an investor thinks a recession is coming, they should probably go further out on the curve. If not, they should seek opportunities in credit.
Gallegos added that for the time being, short-term Treasury ETFs like the BondBloxx Bloomberg Six Month Target Duration US Treasury ETF (XHLF) and the BondBloxx Bloomberg One Year Target Duration US Treasury ETF (XONE) are seeing major inflows.
The replay of the Fixed Income Symposium is now live; registration to view on-demand is available at the link.
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