Making the Case for Short Duration U.S. Treasuries | ETF Trends

High inflation data made the fixed income market trickier to navigate in April. However, there’s still room for profit to be found. Expectations for potential Federal Reserve rate cuts continue to shift.

While some at the start of the year predicted as many as six rate cuts in 2024, doubt is bubbling over whether we’ll see any rate cuts at all this year. Currently, the market consensus sits closer to two potential cuts this year, but these forecasts are subject to change.

See More: Bull vs Bear: Will Rate Cuts Still Happen This Year?  

Looking at fixed income portfolios, options remain on the table for investors to find potential value. While investors tempered rate expectations in April, U.S. Treasury yields rose. BondBloxx research shows that this led to negative returns for U.S. Treasury bonds past the one-year duration. The decline on returns steepened for longer duration U.S. Treasuries, while short-term options mostly either saw mild success or mild drops for the month.

“We prefer an overweight in short- to intermediate-term U.S. Treasuries, to capture attractive yields, price returns from potential Fed actions, and a gradual normalization of the yield curve. The six-month to the three-year part of the curve are less sensitive to the high volatility of long-term rates as well as the reinvestment risk of ultra-short maturities,” BondBloxx added.

Under the Hood of BondBloxx Treasuries ETF XHLF

The U.S. Treasury performers in April had a duration of six months. BondBloxx found that six-month U.S. Treasuries saw the highest total returns for the month, along with the strongest year-to-date return. The BondBloxx Bloomberg Six Month Target Duration US Treasury ETF (XHLF) provides access to U.S. Treasury securities with an average duration of six months.

Investors are continuing to show confidence in XHLF and the short duration strategy. The fund has seen net flows of over $27 million over the last month, according to FactSet. XHLF holds the largest amount of assets for any BondBloxx ETF, as the fund currently has more than $1.1 billion in AUM.

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