High inflation, the Fed aggressively hiking rates, and a so-called “term premium” has pushed up long-term Treasury yields. In fact, the yield on the 10-year U.S. Treasury went up 30 basis points from where it started this year, to 4.18%.
But as Blood Sweat & Tears and Tyrone Davis have sung, what goes up must come down. Cooling inflation and the Fed (presumably) coming to the end of its rate hiking cycle are likely to bring down long-term Treasury yields.
“At the longer end of the curve, we project that the yield on the 10-year U.S. Treasury will decline and average 3.60% in 2024,” writes Morningstar’s David Sekera. “We project the yield will decline even further in 2025 and average 2.75%. As interest rates decline, investors will not only earn the currently high interest rates but will also benefit from additional price appreciation on bonds with longer maturities.”
See more: “Consider Diverse Treasury Investments Across the Yield Curve”
Lock in High Rates With XTEN & XTWY
So, with Treasuries projected to drop, Sekera forecasts that “investors will be best served in longer-duration bonds and locking in the currently high interest rates.”
The BondBloxx Bloomberg Ten Year Target Duration US Treasury ETF (XTEN) targets U.S. Treasury securities with an average duration of roughly 10 years. It carries an expense ratio of 0.08%. The BondBloxx Bloomberg Twenty Year Target Duration US Treasury ETF (XTWY), meanwhile, invests in Treasuries with an average duration of 20 years. It carries an expense ratio of 0.125%.
XTEN and XTWY are two of eight duration-specific U.S. Treasury ETFs that BondBloxx offers. They track a series of indexes that include duration-constrained subsets of U.S. Treasuries with more than $300 billion outstanding. They’re designed to track indexes that achieve target durations using U.S. Treasury securities instead of specific maturities or maturity ranges.
The ETFs range in duration from six months to 20 years.
For more news, information, and analysis, visit the US Treasuries & TIPS Fixed Income Channel.