Why Investors Are Extending Duration in Bond Portfolios

Many fixed income investors have started venturing out in duration in portfolios.

When interest rates are cut, high-quality duration could serve as an important hedge for a bond portfolio.

Many investors anticipate the U.S. economy will continue to demonstrate resilience in 2024, avoiding a recession entirely. Therefore, investors should look beyond broad-based benchmarks in fixed income to generate attractive performance. Instead, investors may consider optimizing fixed income exposure so it benefits from a constructive economic outlook.

The BondBloxx Bloomberg Ten Year Target Duration US Treasury ETF (XTEN) is a way to extend duration. The fund targets U.S. Treasury securities with an average duration of roughly 10 years. XTEN charges just eight basis points.

The fund has seen a surge in net flows as investors look to extend duration. It has seen nearly $63 million year to date through February 26. Incepted in September 2022, the fund has accreted $125 million in net flows.

XTEN is one of eight duration-specific U.S. Treasury ETFs offered by BondBloxx. The funds track a series of indexes that include duration-constrained subsets of U.S. Treasurys. They are designed to track indexes that achieve target durations using U.S. Treasury securities instead of specific maturities or maturity ranges.

The range of ETFs range in duration from six months to 20 years.

See more: “The Investment Case for BBB-Rated Corporate Bond ETFs

Behind the Issuer of XTEN

BondBloxx was launched in October 2021 to develop precision fixed income ETFs. Now, the issuer offers over 20 ETFs, which span U.S. Treasurys, industry- and credit-rating-specific high yield bonds, and emerging market  bonds.

Last month, the firm grew its fund lineup with a trio of ETFs that cover the bottom credit tier of the investment-grade corporate bond market. Each fund targets a different maturity range.

The new funds include the BondBloxx BBB Rated 1-5 Year Corporate Bond ETF (BBBS), the BondBloxx BBB Rated 5-10 Year Corporate Bond ETF (BBBI), and the BondBloxx BBB Rated 10+ Year Corporate Bond ETF (BBBL).

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