When it comes to navigating fixed income durations, many investors have stuck to shorter-duration bonds for now.
However, opportunity may be knocking to move to a longer portfolio. In the December edition of The BEAT, Eaton Vance team noted that they have moved overweight on duration for their portfolios.
Eaton Vance highlighted how bonds may be able to work as a stronger hedge next year, especially in regards to U.S. equity and cyclical exposure. The outlook also highlights that 10-year U.S. treasuries have reached high enough yields that significant further upside may be unlikely.
“With the recent rise in rates, we have moved duration to overweight as we believe further upside in yields is limited,” Eaton Vance explained. “Looking at yield curve decomposition data, expected short rates remain above the Fed’s terminal rate while inflation has stabilized just above target levels. Term premiums have also approached decadal highs over the past month.”
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Investors looking to build up their intermediate bond exposure may wish to consider the Eaton Vance Intermediate Municipal Income ETF (EVIM ). The fund offers a low-cost access to an active intermediate muni portfolio, with a net expense ratio of only 0.10%.
Intermediate-duration bonds can offer distinct advantages over shorter- and longer-term bond options. Intermediate munis have maturities that are long enough to avoid the reinvestment risk of short-duration bonds. Additionally, these bonds can face less long-term interest rate risk than long-duration bonds may experience.
The wide majority of bonds within EVIM have a credit rating of AA or higher. These higher-quality offerings can offer much less risk of default than one may see with lower-rated bonds.
EVIM’s muni bond portfolio also offers diversified access to a wide variety of sectors. This includes the hospital, transportation, and housing sectors, among others.
Along with possessing hedging benefits, EVIM can also help build income for the long-term. As of October 31, 2024, the fund has a distribution yield of 3.73%.
For more news, information, and analysis, visit The ETF Yield Channel.
