You can earn good yields with very low price risk in ultrashort bond funds At a time when interest rates are rising quickly, there is no end of frightening headlines about how bond prices are falling at the same time, offsetting the benefit of the increased income. While interest rates can still soar from here, one way to avoid most of the price risk is with ultrashort bond funds. If you invest in an individual bond, you can hold it until it matures or until it is called and be paid its face value.
But investors in bond funds face day-to-day price volatility risk. A bond fund has a fluctuating share price, and if you are going through a long cycle of rising interest rates, you can have negative total returns (price action plus reinvested dividends) for years. **The action:**Investors see big opportunity in ferocious 2026 bond-market rout Ethan Allen’s CEO on Effective Leadership Strategies Play video: Ethan Allen’s CEO on Effective Leadership Strategies At the moment, investors are looking at a normal yield curve, which means higher yields for committing to longer periods. Two years ago, the yield curve was inverted, with 3-month U.S.
Treasury bills yielding 4.77%, while 10-year Treasury notes yielded only 4.03%. Don’t Short Yourself offers weekly money tips to help you earn it, stack it and grow it. I would like to receive updates and special offers from Dow Jones and affiliates.
I can unsubscribe at any time. Here are what several Treasury maturities were yielding early Wednesday. You can click on the tickers for the latest yield quotes.
For income-seeking investors who want to take no price risk, money-market funds have share prices that are fixed at a dollar, and if you shop around in this market you can find some attractive yields, such as the Schwab Prime Advantage Money Fund, which quotes a seven-day yield of 3.70%. Long-term bond rates were pushed up dramatically as the bond market sold off in anticipation of the Federal Open Market Committee’s decision on Sept. 16 to increase the federal-funds rate by 0.25% to its current target range of 3.75% to 4%. > — Laura Mayfield, senior portfolio manager for securitized products, Fort Washington Investment Advisors When asked if possible further moves by the Fed might affect her investment decisions, Laura Mayfield, who manages the Touchstone Ultra Short Income Fund , said, “The market is pricing in a hold in October and another hike in December.” She added: ”Nobody is going to predict interest rates. The way to manage this portfolio is through diversification.” This is where it can be very helpful to look at total returns for different types of bond funds.
These are one-year total returns, with dividends reinvested, for the Vanguard Intermediate-Term Treasury ETF and two ultrashort bond exchange-traded funds for one year through Tuesday: > ‘We expect positive returns for ultrashort even if rates continue to rise.’ > — Joanne Driscoll, head of short-term liquid markets at Franklin Templeton Fixed Income Right now the Vanguard Intermediate-Term Treasury ETF quotes an SEC 30-day yield of 4.98%, while the Franklin Ultra Short Bond ETF quotes a 30-day yield of 4.18% and the TUSI 30-day yield is 4.43%. But for one year through Tuesday, VIGT’s share price declined 5.4%, while FLUD’s price declined 0.6% and TUSI’s price declined 0.5%. During an interview with MarketWatch, Mayfield said investors in the ultrashort bond space have “a risk appetite similar to what a cash investor’s would be, but they do want additional yield.” VGIT’s average duration is 4.9 years, while its average effective maturity is 5.6 years.
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