A bond comeback is in full swing, as evidenced by the most recent inflows into a typically tepid summer for stocks. That said, investors may want to consider adding bond exposure, especially Treasuries via three options from Vanguard.
As reported by the Financial Times, “US Treasuries and other highly rated debt staged a powerful rally during last week’s equity rout, pulling yields to their lowest level in more than a year. While the sharpest moves subsequently reversed, fund managers say they underscored the appeal of bonds in an environment where growth is slowing, inflation is falling, and the Federal Reserve — along with other major central banks — is expected to deliver multiple cuts in interest rates by the end of the year.”
Not a One-Time Event
The Financial Times also noted that because of the latest market volatility, investors have poured $8.9 billion into bonds of the government and corporate variety in August. This move toward bonds hasn’t been a one-time event, as July also saw inflows of $57.4 billion into bonds, marking the highest number since the start of the year and the largest since the middle of 2021, based on data from analytics company EPFR.
As mentioned, for investors looking for bonds that can absorb any further market shocks, Treasuries are an ideal option.
“The best protection against a downside scenario like a recession is Treasury bonds,” said Robert Tipp, head of global bonds at PGIM Fixed Income.
To strike a balance between yield and mitigating rate risk, consider using an intermediate bond fund via the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT ). This fund uses 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 (excluding inflation-protected bonds) with maturities between three and 10 years.
A Long and Short Option
For those seeking to step further out on the yield curve, take a look at the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT ). It 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. It includes fixed income securities issued by the U.S. Treasury (excluding inflation-protected bonds) with maturities greater than 10 years.
To mitigate rate risk and lock in current yields, consider the Vanguard Short-Term Treasury ETF (VGSH ). The fund offers ideal exposure to short-term Treasury notes as it focuses on maturity dates that fall within one to three years.
For more news, information, and strategy, visit the Fixed Income Channel.
