Shorter-term and 10-year and longer-dated Treasuries are usually the forms of U.S. government debt that command the most attention. But fixed income investors shouldn’t sleep on the intermediate part of the duration curve. Professional investors don’t.
Now could be an ideal to evaluate intermediate-term Treasuries, including five-year offerings. Five-year Treasuries were recently drubbed, but some big-name banks that sell-off will lead to a buying opportunity and that could be good news for exchange traded funds such as the BondBloxx Bloomberg Five Year Target Duration US Treasury ETF (XFIV). XFIV is part of the BondBloxx stable of eight duration-specific U.S. Treasury ETFs.
It could also be one of the most pertinent members of that group over the near term. The aforementioned sell-off by five-year bonds has some market observers contemplating opportunities with these bonds.
Right Here, Right Now for XFIV
Last week, five-year yields surged as bond market participants dialed back expectations that the Federal Reserve will imminently lower interest rates. Higher yields, which trigger lower bond prices, could actually work in favor of XFIV.
“Morgan Stanley sees scope for a rebound in Treasuries on expectations data in the coming weeks may surprise to the downside. JPMorgan Chase & Co. is suggesting investors buy five-year notes as yields have already climbed to levels last seen in December, though it warned that markets are still too aggressive in pricing for an early start to central bank interest-rate cuts,” reported Garfield Reynolds for Bloomberg.
For investors considering intermediate-term Treasuries of any duration or XFIV itself, patience could be warranted on the interest rate front. Forecasting exactly when the Fed will cut could be a fool’s errand.
“JPMorgan expects the first Fed cut to come in June, rather than the May move, which is now fully priced in by swaps contracts. Morgan Stanley sees central banks in both the US and Europe to be in focus in mid-March. And forecasts markets pricing in at least one rate cut by northern hemisphere spring for most central banks,” according to Bloomberg.
XFIV could offer an advantage that’s arguably not getting enough credit. If the Fed delays lowering rates, it’s likely that risk assets, such as equities, will be pinched. Intermediate-term bonds won’t be immune to that scenario. But those bonds are less correlated to stocks than are short-duration and longer-dated Treasuries.
For more news, information, and analysis, visit the US Treasuries & TIPS Fixed Income Channel.