Inflation isn’t at the 2% level the Fed has been targeting. But it’s gone down considerably from its peak of 9% last year. Plus, expectations of a recession occurring this year thus far have yet to come to fruition. Although we still have a few weeks left in the year.
“Despite persistent expectations for a second-half recession driven by inflation and higher borrowing costs, economic indicators consistently outperformed projections,” wrote Morningstar’s Sarah Hansen. She cited the example of the U.S. economy growing more than 5% in Q3, “the fastest expansion in nearly two years.”
And amid this surprisingly resilient economy, the U.S. government bond market is seeing a massive rally as investors expect the Fed to be ending its current interest-rate hiking cycle.
S&P Global’s Brian Scheid wrote earlier this month that the S&P US Treasury Bond Index has increased more than 3.6% since October 19.
He quoted Althea Spinozzi, a senior fixed income strategist with Saxo Bank, as saying that the “recent drop in yields has been caused by speculation that inflationary pressures are over, and that rate cuts will need to come quickly next year.”
And while she suggested that this could change, it may not be a bad idea for investors to take advantage of this spike in government bonds.
Targeting Treasuries Through Vanguard
Vanguard has a suite of Treasury ETFs that target Treasuries of varying durations.
The Vanguard Short-Term Treasury ETF (VGSH ) maintains a dollar-weighted average maturity of one to three years. Meanwhile, the Vanguard Intermediate-Term Treasury ETF (VGIT ) targets Treasuries with durations of five to 10 years.
The Vanguard Long-Term Treasury ETF (VGLT ) maintains an average maturity of 10 to 25 years. And for investors wanting to go even further out on the curve, there’s the Vanguard Extended Duration Treasury ETF (EDV ). This fund seeks to track the performance of the Bloomberg U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index.
Vanguard’s CEO Tim Buckley said at Exchange 2023 that the firm’s goal is “to make sure we’re producing the top-performing funds and ETFs out there.”
“We’ll wrap it with low-cost, scalable advice and deliver them on a world-class, digitally enabled platform,” he noted. “And if you do that well and you can keep improving it, you’ll create value into the future.”
For more news, information, and analysis, visit the Fixed Income Channel.