Demand for Government Bonds Grows as Business Weakens

“S&P Global’s composite purchasing managers’ index fell from 52.3 in June to 47.5 in July, falling below the 50 level that indicates expansion for the first time since June 2020,” Financial Times reported. “The decline was driven by particularly weak reports from respondents in the services sector, and heightened concerns that the Federal Reserve’s efforts to fight inflation by aggressively rising interest rates are pushing the US economy toward recession.”

Given the current market environment where interest rate hikes are on the horizon, one ETF to consider is the Vanguard Short-Term Treasury ETF (VGSH A+). This ETF offers exposure to short-term government bonds, focusing on Treasury bonds that mature in one to three years.

This fund can be an ideal option given the uncertainty in the current market environment. Bonds can offer investors a safe haven against stock market volatility, while short-term bonds limit the risks of potential rate rises that can rob investors of fixed income opportunities.

Investors willing to step further out on the yield curve can look to getting exposure to bonds with intermediate- and long-term maturities. One option is the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT A), and another is the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT A).

Up first is VGIT, which gives investors exposure to safer debt issues with Treasury notes. Per the fund description, VGIT seeks to track the performance of a market-weighted Treasury index with an intermediate-term dollar-weighted average maturity.

The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Treasury 3-10 Year Bond Index. This index includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities between three and 10 years.

Next is VGLT, which seeks to track the performance of a market-weighted Treasury index with a long-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Long Treasury Bond Index.

This index includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities greater than 10 years. Under normal circumstances, at least 80% of the fund’s assets will be invested in bonds included in the index.

For more news, information, and strategy, visit the Fixed Income Channel.