By ETF Heat Map Team

Given the possible upcoming interest rate hike, some traders remain in favor of short term debt as opposed to longer term bonds. However, long term capital allocators are sticking with certain assets (i.e. 30 year bonds) to match the duration of their liabilities, duration matching. As such, it seems that medium term 10 year bonds are losing popularity. Accordingly, we quickly discuss certain short term bond ETFs and a longer duration bond ETF that market participants can find in the ETF Heat Map screener and database:

  • BSV – Vanguard Short-Term Bond ETF
  • SHY – iShares 1-3 Year Treasury Bond ETF
  • BLV – Long-Term Bond ETF

BSV, a Vanguard ETF, is a shorter term Bond ETF that attempts to track the performance of a market-weighted bond index that covers investment-grade bonds with a dollar-weighted average maturity of 1 to 5 years. It has a Yield to Maturity of 1.1% with an average duration of approximately 2.7 years. It has an extremely low expense ratio of 0.09% and has returned approximately 3% annually since inception.

bsv

On the other hand, BLV, a Vanguard ETF, is a long term Bond ETF that track the performance of the Barclays U.S. Long Government/Credit Float Adjusted Index. It has a Yield to Maturity of 3.2% with an average duration of approximately 15.7 years. It has an extremely low expense ratio of 0.09% and has returned approximately 8% annually since inception.

Fixed income strategist, Aaron Kohli, of BMO Capital Markets, stated that the current mindset of most investors is that the Federal Reserve will never be able to come out of its current state. He believes that the Federal Reserve is in a tough position in deciding when to increase rates while estimating the impact it will have on the economy.

Most market participants (including certain large investors) believe that the Fed should not increase rates as this action will negatively impact the domestic and global economy. However, maintaining low rates for a long period might spell trouble and would possibly reduce the ammunition available to the central banks in the unfortunate event any future financial crises occur. In any case, we have outlined either Long Term Bond ETFs or Short Term Bond ETFs that market participants can consider.