Despite the Fed’s aggressive monetary tightening and the regional banking crisis earlier this year, the U.S. economy has been surprisingly resilient. Bond yields continue to rise, with long-term Treasuries at their highest level since October 2007.
And industry insiders think that these higher yields could be sticky. Since the Fed’s meeting last week, the watchword on Wall Street has been “higher for longer.”
“Several issues have been driving bond yields higher over the last two months,” wrote Morningstar’s Tom Lauricella. “Most prominent is the continued strength of the U.S. economy, especially the jobs market, which is seen as the reason the Fed will keep interest rates at or near current levels for longer than what had been expected. In addition, the market is adjusting to a flood of new government bond issuance.”
With bonds continuing to deliver high yields, investors may want to add some fixed income ETFs to their portfolios. Vanguard offers a suite of fixed income ETFs of varying styles and durations.
The Vanguard Short-Term Bond Index Fund ETF Shares (BSV) invests in U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds with a dollar-weighted average maturity of one to five years. BSV carries an expense ratio of 4 basis points.
Investors wanting to go a little further out on the duration curve may want to consider the Vanguard Intermediate-Term Bond ETF (BIV). The fund targets investment-grade bonds with a dollar-weighted average maturity of five to 10 years. BIV’s expense ratio is 0.04%
And for those with medium- or long-term goals seeking reliable income, the Vanguard Total Bond Market ETF (BND) may be what they’re looking for. It provides broad exposure to the taxable investment-grade U.S. dollar-denominated bond market, excluding inflation-protected and tax-exempt bonds. BND has an expense ratio of 3 bps.
