Amid elevated market volatility earlier this year, low interest rates, and the Federal Reserve stepping into to aid various corners of the bond market, fixed income ETFs are on a blistering pace of asset gathering.
“Although U.S. Treasuries are often seen as boring by investors who tend to see news headlines focused on corporate and high yield markets, the Treasury market is actually a very diverse and dynamic place,” said BlackRock in a recent note. “The U.S. government tends to change its supply patterns based on funding needs, current market rates, and investor demand.”
In the first quarter of 2020 alone, bond ETFs registered record trading volumes, reaching $1.3 trillion compared with $2.6 trillion globally for the entirety of 2019. Bond ETFs provided invaluable price discovery – helping investors understand rapidly changing market conditions at a time when it was most critical, and providing a benchmark reference for returns, volatility, and sentiment.
Although interest rates reside near historic lows, investors are also leaning toward short-dated Treasuries and ETFs, including the iShares Short Treasury Bond ETF (NASDAQ: SHV) and iShares 1-3 Year Treasury Bond ETF (NYSEArca: SHY).
“Using an ETF to access short-term Treasuries can help investors stay fully invested. Since the fund continuously holds bonds that mature in 3 months or less, the ETF can help you maintain exposure without having to roll individual bonds yourself,” according to BlackRock. “Rolling individual treasury bonds can be operationally intense and time-consuming. However, it is important to note that there is no guarantee of principal protection for an ETF as its price can fluctuate based on the value of its underlying securities and/or the supply and demand of the ETF shares themselves.”
BlackRock recently added the iShares 0-3 Month Treasury Bond ETF (SGOV) to its roster of bond ETFs. SGOV follows the ICE 0-3 Month US Treasury Securities Index and is available on NYSE Arca.
The underlying index is composed of U.S. Treasury bills, notes and bonds with maturities of three months or less, including only fixed-coupon securities and excluding inflation-linked debt and Separate Trading of Registered Interest and Principal of Securities (STRIPS).
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.