Short-duration Treasuries and related ETFs provide attractive and relatively low-risk fixed-income exposure for bond investors.
“We expect policy normalization to lead to modestly higher long-term rates in the U.S.,” BlackRock strategists, led by Richard Turnill, said in a research note.
“Rising short-term yields price in a quarterly pace of U.S. rate hikes – and make the front end of the U.S. Treasury curve attractive for U.S. dollar-funded investors, we believe. Risks include a pause in the Fed’s rate rises due to tremors elsewhere,” the strategists added.
BlackRock anticipates a moderately rising rate environment due to the ongoing economic expansion and Fed normalization. Consequently, longer maturities are vulnerable to yield curve steepening. In such an environment, BlackRock favors shorter-duration and inflation-linked debt as buffers against rising rates and inflation.
U.S. inflation is projected to hover around the Federal Reserve’s 2% target in the short-term. The Fed has steadily hiked rates since late 2015 and is largely expected to stay on course toward a gradual normalization path through 2019.