Given the large pool of options available to fixed income investors in the bond market, the ideal option given the current economic uncertainty is still Treasuries. With that, Vanguard has three options worthy of consideration for any portfolio.
While the recent downgrade in U.S. debt may cause some jitters for fixed income investors, the U.S. will likely remain a safe haven bet regardless if the 24-hour news cycle spooks the market. If anything, the rise in yields offers an opportunity to get exposure to price dips in Treasuries while the Fed mulls over what to do with interest rates.
The Fed is currently at ease with keeping interest rates on pause. However, Vanguard noted that the overall sentiment is that rates will eventually head lower. As such, Vanguard favors intermediate bonds to mitigate impending risks near- and long-term.
“Our revised outlook reinforces our confidence that U.S. rates will trend lower,” Vanguard said in a fixed income report (Active Fixed Income Perspectives Q2 2025). “We favor intermediate durations, as the short end is susceptible to monetary policy uncertainty, and the long end faces risks from technical factors, inflation, and fiscal spending concerns.”
Vanguard noted that economic conditions are under close watch. They said that “slowing growth and easier monetary policy will prove to be the dominant drivers of Treasury yields in the months ahead.” Summarily, it would serve fixed income investors best to stay within the safe confines of Treasuries. This is especially the case of economic growth begins to pull back.
“We expect Treasuries to remain effective hedges for risk assets if economic momentum shows credible signs of slowing,” they added further. “Short- and intermediate-maturity Treasury yields can fall substantially if the odds of a recession rise, providing diversification for credit.”
Given this outlook, there are ideal opportunities, specifically from Vanguard’s suite of bond ETFs.
3 Options for Treasuries Exposure
For fixed income investors looking to get Treasuries exposure, Vanguard has a few ETF options. They can tailor their exposure based on the individual investor’s portfolio needs. They can get short-term exposure to mitigate rate risk or long-term exposure for additional yield. Additionally, they can opt for a median option with intermediate exposure.
That said, consider either the Vanguard Short-Term Treasury ETF (VGSH), the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT), or the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT). All funds feature a low 0.03% expense ratio.
All three aforementioned ETFs can be used as stand-alone products, deriving the specific benefits of each fund for tailored exposure. As previously mentioned, VGSH is ideal for mitigating rate risk, while VGLT is a prime option for yield. VGIT strikes a balance between rate risk and yield with intermediate Treasuries exposure.
Moreover, for more tactical purposes, investors can also use the trio of funds to mimic a bond laddering strategy. Pooling all funds together will also bring additional diversification when building a fixed income portfolio that emphasizes Treasuries exposure. This could be wise during these uncertain times where the direction of interest rates still remains in flux.
For more news, information, and analysis, visit the Fixed Income Channel.
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