With the stock market roiled by uncertainty, bonds have remained resilient. Additionally, with interest rates still relatively high, attractive yield options exist in Treasuries.
Typically, fixed income investors have to take on additional credit risk to maximize their yield options. With inflation still high and the Fed opting to keep interest rates unchanged until further economic data warrants a cut, it’s an opportune time to grab yield.
“With Treasuries now yielding around 4% across all maturities and with the yield curve sloping upward again for intermediate- and long-term maturities, yields are high enough that investors may want to consider bonds for their income if not their total return potential,” Morningstar noted.
As mentioned, the Fed is still in flux regarding the direction of interest rates. A cooling economy could certainly benefit bond price appreciation, or in in the worst-case scenario, a recession. In the meantime, fixed income investors can reap the benefits of yield if the economy doesn’t run hot.
“Assuming inflation does not surge, a bond ladder can help them do just that while preserving and even growing wealth amid higher rates,” Morningstar added. “In a market with a typically steep yield curve, where short-term rates are lower than long-term rates, a laddered portfolio is especially attractive to lock in those higher rates.”
That said, Vanguard has three funds that stay within the confines of Treasury bonds while allowing for a laddering strategy given their varying maturity date ranges.
3 Treasuries ETFs for Stand-Alone & Laddering
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 the median option, there’s 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.
For stepping out further 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.
For more news, information, and analysis, visit the Fixed Income Channel.
