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ETFs to Play as U.S. Benchmark Treasury Yield Tops 2%
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Wall Street has been on a choppy ride since the start of 2022 due to rising rate worries. At the end of Feb 10, 2022, the yield on the benchmark 10-year Treasury note jumped to 2.03% from 1.81% at the start of the month. US 10-year yield topped 2% for first time since August 2019.
The yield on the 30-year Treasury bond increased 18 basis points from Feb 1 to 2.30%. The yield on the benchmark 2-year Treasury note surged 43 bps from the start of the month to 1.61%. Rates have been rising in the United States on faster and multiple Fed’s rate hike bets.
Sky-high inflation emanating from labor shortage, supply chain disruptions as well as higher crude prices should make Fed members comfortable with rate hikes in the coming days. Federal Reserve policy makers indicated that they are likely to enact their first interest rate hike since 2018 in their March meeting to combat sky-high inflation.
As of Feb 10, 2022, CME’s FedWatch Tool said that there are 32.9% chances of 2022 closing out with 175-200 bps of rates while a 26.5% probability is there for the year to end at 200-225 bps of rate. Against this backdrop, below we highlight a few ETFs that are must-buys at present, to fight the rising rate worries.
This ETF is active and does not track a benchmark. The Simplify Interest Rate Hedge ETF seeks to hedge interest rate movements arising from rising long-term interest rates, and to benefit from market stress when fixed income volatility increases, while providing the potential for income.
The fund holds a large position in over-the-counter (OTC) interest rate options intended to provide a direct and transparent convex exposure to large upward moves in interest rates and interest rate volatility. The fund charges 50 bps in fees.
The FolioBeyond Rising Rates ETF is an actively managed exchange-traded fund that seeks to provide protection against rising interest rates while generating current income under stable interest rates.
RISR invests primarily in interest-only mortgage-backed securities (MBS IOs) and U.S. Treasury bonds. MBS IOs are a negative duration security that generally benefit from rising rates. The expense ratio of RISR is 1.01%.
ETRACS IFED Invest With The Fed TR Index ETN (IFED - Free Report)
The unerlying IFED Large-Cap US Equity Index Total Return is a composite of large-cap U.S. equities that is designed to maximize exposure to those equities best positioned to benefit from the prevailing monetary environment.The fund charges 45 bps in fees.
The underlying Bloomberg US Floating Rate Note < 5 Years Index comprises of U.S. dollar-denominated, investment-grade floating rate bonds with remaining maturities between one month and five years. The fund FLOT charges 15 bps in fees.
WisdomTree Interest Rate Hedged U.S. Aggregate Bond Fund (AGZD - Free Report)
The underlying Bloomberg Rate Hedged U.S. Aggregate Bond Index, Zero Duration seeks to combine exposure to the Barclays US Aggregate Bond Index with a structured interest rate overlay to target a duration of zero years.The fund AGZD charges 15 bps in fees.
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ETFs to Play as U.S. Benchmark Treasury Yield Tops 2%
Wall Street has been on a choppy ride since the start of 2022 due to rising rate worries. At the end of Feb 10, 2022, the yield on the benchmark 10-year Treasury note jumped to 2.03% from 1.81% at the start of the month. US 10-year yield topped 2% for first time since August 2019.
The yield on the 30-year Treasury bond increased 18 basis points from Feb 1 to 2.30%. The yield on the benchmark 2-year Treasury note surged 43 bps from the start of the month to 1.61%. Rates have been rising in the United States on faster and multiple Fed’s rate hike bets.
Sky-high inflation emanating from labor shortage, supply chain disruptions as well as higher crude prices should make Fed members comfortable with rate hikes in the coming days. Federal Reserve policy makers indicated that they are likely to enact their first interest rate hike since 2018 in their March meeting to combat sky-high inflation.
As of Feb 10, 2022, CME’s FedWatch Tool said that there are 32.9% chances of 2022 closing out with 175-200 bps of rates while a 26.5% probability is there for the year to end at 200-225 bps of rate. Against this backdrop, below we highlight a few ETFs that are must-buys at present, to fight the rising rate worries.
ETFs in Focus
Simplify Interest Rate Hedge ETF (PFIX - Free Report)
This ETF is active and does not track a benchmark. The Simplify Interest Rate Hedge ETF seeks to hedge interest rate movements arising from rising long-term interest rates, and to benefit from market stress when fixed income volatility increases, while providing the potential for income.
The fund holds a large position in over-the-counter (OTC) interest rate options intended to provide a direct and transparent convex exposure to large upward moves in interest rates and interest rate volatility. The fund charges 50 bps in fees.
FolioBeyond Rising Rates ETF (RISR - Free Report)
The FolioBeyond Rising Rates ETF is an actively managed exchange-traded fund that seeks to provide protection against rising interest rates while generating current income under stable interest rates.
RISR invests primarily in interest-only mortgage-backed securities (MBS IOs) and U.S. Treasury bonds. MBS IOs are a negative duration security that generally benefit from rising rates. The expense ratio of RISR is 1.01%.
ETRACS IFED Invest With The Fed TR Index ETN (IFED - Free Report)
The unerlying IFED Large-Cap US Equity Index Total Return is a composite of large-cap U.S. equities that is designed to maximize exposure to those equities best positioned to benefit from the prevailing monetary environment.The fund charges 45 bps in fees.
iShares Floating Rate Bond ETF (FLOT - Free Report)
The underlying Bloomberg US Floating Rate Note < 5 Years Index comprises of U.S. dollar-denominated, investment-grade floating rate bonds with remaining maturities between one month and five years. The fund FLOT charges 15 bps in fees.
WisdomTree Interest Rate Hedged U.S. Aggregate Bond Fund (AGZD - Free Report)
The underlying Bloomberg Rate Hedged U.S. Aggregate Bond Index, Zero Duration seeks to combine exposure to the Barclays US Aggregate Bond Index with a structured interest rate overlay to target a duration of zero years.The fund AGZD charges 15 bps in fees.