RRising yields and rates are making it difficult for bonds to prosper. Investors’ portfolios should not be devoid of bonds.
Despite bond market tightening causing a decline in bond prices, there are still positives. After overcoming the effects of the ongoing pandemic, credit quality in the United States is now stronger.
“You may have seen that bonds are performing poorly as the Federal Reserve tightens its monetary policy,” a MarketWatch article says. “But that’s only half of the story. Strong defaults in the U.S. credit quality are rare. Nearly all bond issuers pay interest on time.”
The following options are available to get bond exposure in current markets and to limit rate risk:Vanguard Short Term Treasury ETF (VGSH).. VGSH provides exposure to short-term government securities with a focus on Treasury bonds that mature in one or three years.
Overall, VGSH:
- Seeks to provide current income with minimal price fluctuation.
- Invests primarily with high-quality U.S. Treasury bonds (investment-grade).
- Maintains a dollar weighted average maturity of one-three years.
A Total Bond Solution
Investors who aren’t sure where to start when looking for bond ETF exposure may want to look at the aggregate option. Vanguard is the only company that offers this option. Vanguard Total Bond Market Index Fund Shares ETF Shares (BND)..
BND seeks to improve the performance of Bloomberg U.S. Aggregate Float Adjusted Index represents a wide range of public and investment-grade, taxable and fixed income securities in America, including corporate bonds and government bonds.
Bond investors can use BND to hedge against the volatility in the equities markets. Because of its dynamic ability to quickly be bought or sold in the open markets, the ETF can also be used by short-term traders.
For more news, information, or strategy, visit the Fixed Income Channel.
The views and opinions expressed in this article are those of the author and not necessarily those of Nasdaq, Inc.