Yields on benchmark Treasuries have increased this year as market observers anticipate further monetary policy tightening out of the Federal Reserve.
Nevertheless, fixed-income investors have a number of ways to hedge their portfolios against rising rates through targeted exchange traded fund strategies.
The ProShares High Yield Interest Rate Hedged ETF (Cboe: HYHG) is one way investors can stay involved with high-yield corporate debt while reducing interest rate risk. HYHG tracks the FTSE High Yield (Treasury Rate-Hedged) Index.
HYHG, which is over five years old, “targets zero interest rate risk by including a built-in hedge against rising rates that uses short positions in U.S. Treasury futures,” according to ProShares.
By hedging away rate risk, bond investors can focus on the underlying debt securities without fear of the negative effects of rising interest rates, maintaining their current level of income generation and potentially capitalizing on the tightening credit spreads.