It’s Time to Play the Long Game in These Bond ETFs

After the Fed just cut rates a second time this year, a steeper yield curve could force bond investors to reconsider the long end again. That said, they can play the long game with ETF options from Vanguard that focus on maximizing yield by investing in bonds with maturity dates extending past 10 years.

Last month, bond traders were already placing bets on long-term bonds, reversing course due to looming Fed rate cuts. Bets on benchmark 10-year Treasuries could fuel a rally and push the prevailing yield below 4% as noted by Bloomberg News. In turn, investors are slowly ditching the short end of the yield curve in favor of the long end.

“There’s still a lot of caution in markets not to jump the gun, but they are dipping their toes in,” said Gennadiy Goldberg, head of U.S. interest rates strategy at TD Securities. “It is good to lock in these higher rates for longer, but very, very cautiously.”

Those looking to follow suit may want to consider the Vanguard Long-Term Bond Index Fund ETF Shares (BLV). It seeks to track the performance of the Bloomberg U.S. Long Government/Credit Float Adjusted Index, which includes all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds with maturities of greater than 10 years and are publicly issued.

Treasury or Corporate Bond Focus

While BLV offers a broad, all-encompassing option, investors can tailor their exposure to Treasuries or corporate bonds. For the former, consider using the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT). The fund seeks to track the performance of a market-weighted Treasury index with a long-term dollar-weighted average maturity. It employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Long Treasury Bond Index, which includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities over 10 years.

Corporate bonds can offer a pathway to higher yields if investors are open to accepting higher credit risk. If so, they should look at the Vanguard Long-Term Corporate Bond Index Fund ETF Shares (VCLT). As per the fund description, VCLT seeks to track the performance of a market-weighted corporate bond index with a long-term dollar-weighted average maturity.

VCIT employs an indexing investment approach designed to track the performance of the Bloomberg U.S. 10+ Year Corporate Bond Index. This index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities greater than 10 years.

For more news, information, and strategy, visit the Fixed Income Content Hub.