With the premise of interest rate shifts on everyone’s mind, investors are evaluating their portfolio durations to best capitalize on any potential changes.
There has been a palpable shift in investors moving from short-duration U.S. Treasury ETFs, opting instead for longer-duration options. Part of this change could be attributed to a more positive outlook on the broader U.S. economy.
See more: Why Investors Are Extending Duration in Bond Portfolios
However, the February Consumer Price Index showed inflation has proven to be stickier than anticipated. Consumer prices went up 0.4% last month, while the CPI advanced 3.2% over the last 12 months. This newfound data adds fuel to the argument that we won’t see the Federal Reserve cut rates until mid-2024.
With these factors kept in mind, focusing on intermediate duration for bond portfolios may provide investors an avenue to best profit from rate cuts.
“We prefer an overweight in intermediate-term U.S. Treasuries, to capture attractive yields, price returns from likely Fed actions in mid-2024, and a gradual normalization of the yield curve. This sector is less sensitive to the high volatility of long-term rates as well as the reinvestment risk of ultra-short maturities,” BondBloxx noted in its Fixed Income Monthly Update.
Many Options for Intermediate-Duration Treasury ETFs
BondBloxx possesses a wide variety of U.S. Treasury ETFs that fit this bill. These funds all vary in duration, providing investors with options when it comes to choosing an intermediate-duration U.S. Treasury ETF.
Investors seeking the higher end of intermediate-duration securities could consider the BondBloxx Bloomberg Ten Year Target Duration US Treasury ETF (XTEN). As the name suggests, XTEN aims to invest in U.S. Treasury securities that possess an average duration of roughly 10 years.
XTEN operates with a net expense ratio of 0.08%. The fund has shown positive returns recently, up 2.57% over three months and rising 1.36% in the last month. Within the past 30 days, XTEN has seen nearly $12 million in net flows.
Shorter-duration intermediate U.S. Treasury options also remain a valid option. The BondBloxx Bloomberg Five Year Target Duration US Treasury ETF (XFIV) is also showing good results in recent months. In the last month alone, the fund has added net flows over $23 million, contributing to a total of approximately $77 million in AUM. The fund is currently up 0.61% within the last month and possesses a net expense ratio of 0.05%.
BondBloxx currently has 23 ETFs listed in the United States. These funds represent over $2.5 billion in assets under management. The largest fund, the BondBloxx Bloomberg Six Month Target Duration US Treasury ETF (XHLF), currently holds over $1.1 billion in AUM.
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