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After raising it to the level of 5.50%, the Federal Reserve is expected to slash interest rates at some points this year. However, the Fed will start dialing back higher rates only when there is greater confidence that inflation is moving sustainably toward 2%.
Notably, inflation data this year came in at moderately hot, but the trend shows signs of cooling. On the economic front, Powell noted that labor market tightness has eased and inflation has fallen substantially, although it remains above the target.
Keeping this trend in view, WisdomTree recently launched two ETFs called WisdomTree 1-3 Year Laddered Treasury Fund (USSH) and WisdomTree 7-10 Year Laddered Treasury Fund (USIN). Let’s delve a little deeper.
Inside USSH
The fund looks to provide targeted exposure to recently issued U.S. Treasury securities with maturities between one and three years. The fund tracks the Bloomberg US Treasury 1-3 Year Laddered Index. The fund intends to tap high-quality income with a moderate level of interest rate risk. It is an effective tool to better manage interest rate risk within a fixed income portfolio.
The fund charges 15 bps in fees. Its average yield to maturity is 4.72%. Effective Duration is 1.85 years and Average Years to Maturity is 1.98 years.
Inside USIN
The fund looks to provide targeted exposure to recently issued U.S. Treasury securities with maturities between seven and ten years. The fund tracks the Bloomberg US Treasury 7-10 Year Laddered Index. The fund intends to tap high-quality income with a level of interest rate risk consistent with an intermediate bond portfolio.
The fund charges 15 bps in fees. Its average yield to maturity is 4.31%. Effective Duration is 7.28 years and Average Years to Maturity is 8.50 years.
How Do They Fit In a Portfolio?
If the Fed cuts short-term rates, risk-on activities would likely return to the market. Economic activities would gain strength. This, in turn, would boost long-term bond yields. Since bond yields and bond prices are inversely related, fixed-income investments that offer protection against interest rate risks should be tapped in such a scenario.
Effective duration is essential for the measurement of interest rate risk for bonds. Fixed income ETFs with lower effective duration should be tapped when long-term rates rise. Moreover, lower average-years-to-maturity minimizes the default risks. Moreover, these two ETFs offer high current income.
ETF Competition
There are lot of high-income short-term and intermediate-term U.S. treasury ETFs that may offer competition. However, many of these ETFs are composed of corporate bonds. As far as U.S. treasuries are concerned, US Treasury 2 Year Note ETF (UTWO - Free Report) may be a good alternative to USSH. The fund tracks the ICE BofA Current 2-Year US Treasury Index is a one-security index comprised of the most recently issued 2-year US Treasury note. The fund yields 4.44% annually and charges 15 bps in fees.
On the other hand,BondBloxx Bloomberg Ten Year Target Duration US Treasury ETF (XTEN - Free Report) tracks the Bloomberg US Treasury Ten Year Duration Index composes of U.S. Treasury securities with a duration between 6 and 14 years. It may come across as a loose alternative to USIN. The fund charges 8 bps in fees and yields 3.79% annually.
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Play Likely Fed Policy Shifts With These New ETFs
After raising it to the level of 5.50%, the Federal Reserve is expected to slash interest rates at some points this year. However, the Fed will start dialing back higher rates only when there is greater confidence that inflation is moving sustainably toward 2%.
Notably, inflation data this year came in at moderately hot, but the trend shows signs of cooling. On the economic front, Powell noted that labor market tightness has eased and inflation has fallen substantially, although it remains above the target.
Keeping this trend in view, WisdomTree recently launched two ETFs called WisdomTree 1-3 Year Laddered Treasury Fund (USSH) and WisdomTree 7-10 Year Laddered Treasury Fund (USIN). Let’s delve a little deeper.
Inside USSH
The fund looks to provide targeted exposure to recently issued U.S. Treasury securities with maturities between one and three years. The fund tracks the Bloomberg US Treasury 1-3 Year Laddered Index. The fund intends to tap high-quality income with a moderate level of interest rate risk. It is an effective tool to better manage interest rate risk within a fixed income portfolio.
The fund charges 15 bps in fees. Its average yield to maturity is 4.72%. Effective Duration is 1.85 years and Average Years to Maturity is 1.98 years.
Inside USIN
The fund looks to provide targeted exposure to recently issued U.S. Treasury securities with maturities between seven and ten years. The fund tracks the Bloomberg US Treasury 7-10 Year Laddered Index. The fund intends to tap high-quality income with a level of interest rate risk consistent with an intermediate bond portfolio.
The fund charges 15 bps in fees. Its average yield to maturity is 4.31%. Effective Duration is 7.28 years and Average Years to Maturity is 8.50 years.
How Do They Fit In a Portfolio?
If the Fed cuts short-term rates, risk-on activities would likely return to the market. Economic activities would gain strength. This, in turn, would boost long-term bond yields. Since bond yields and bond prices are inversely related, fixed-income investments that offer protection against interest rate risks should be tapped in such a scenario.
Effective duration is essential for the measurement of interest rate risk for bonds. Fixed income ETFs with lower effective duration should be tapped when long-term rates rise. Moreover, lower average-years-to-maturity minimizes the default risks. Moreover, these two ETFs offer high current income.
ETF Competition
There are lot of high-income short-term and intermediate-term U.S. treasury ETFs that may offer competition. However, many of these ETFs are composed of corporate bonds. As far as U.S. treasuries are concerned, US Treasury 2 Year Note ETF (UTWO - Free Report) may be a good alternative to USSH. The fund tracks the ICE BofA Current 2-Year US Treasury Index is a one-security index comprised of the most recently issued 2-year US Treasury note. The fund yields 4.44% annually and charges 15 bps in fees.
On the other hand,BondBloxx Bloomberg Ten Year Target Duration US Treasury ETF (XTEN - Free Report) tracks the Bloomberg US Treasury Ten Year Duration Index composes of U.S. Treasury securities with a duration between 6 and 14 years. It may come across as a loose alternative to USIN. The fund charges 8 bps in fees and yields 3.79% annually.