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The ultra short-term corner of the bond market has been an area to watch lately, given the current stock market uncertainty.ETFs like Enhanced Short-Maturity Strategy ETF (MINT - Free Report) , Short Maturity Bond iShares ETF (NEAR - Free Report) , Ultrashort Term iShares ETF (ICSH - Free Report) and iShares 0-3 Month Treasury Bond ETF (SGOV - Free Report) have been hitting 52-week highs lately. Let’s delve a little deeper.
Rising rate worries are gripping the whole world, crippling the investing scenario again with uncertainty. Volatility may become the name of the game thanks to a host of factors ranging from sticky inflation in the United States and other parts of the developed world, fears of a slowdown in China and the resultant pressure on supply chain and global growth, and geopolitical issues.
The S&P 500 recorded its first three-month losing streak in October since March 2020. The S&P 500 fell 2.2% in October. Meanwhile, indicator of the stock market volatility – iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX - Free Report) – has advanced 0.6% past month. As rising rate worries have been prevalent with chances of higher-for-longer U.S. interest rates, the bond investing is also at worse. This happens because, bond prices share an inverse relationship with bond yields. Investors worry about interest rate risks.
Why Cash is King
The road ahead in the stock market is a bit unclear. As investors aim to reduce their exposure to potential stock market downturns, money-market ETFs tend to gain. Investors should note that this kind of ultra-short-term bond ETFs have lower interest rate risks.
Hence, we believe cash and short-dated fixed income may play a greater role in adding stability to a portfolio. This is especially true given that the Fed will keep rates at a 22-year high level this year and short-term bond yields will remain elevated alongside. That would result in a similar rate for cash-like assets such as money-market funds.
High Yield Alongwith Lower Interest Rate Risks: Winning Proposition
As of Oct 31, yield on three-year U.S. treasury note was 4.90%, higher than the 10-year note (i.e., 4.88%). One -year note yielded 5.44% while one-month note yielded 5.56%. Notably, the fund MINT yields 4.38%, NEAR yields 3.95%, ICSH yields 4.25% and SGOV yields 4.38% annually. This means that these funds offer pretty high current income.
Meanwhile, the ETF ICSH has a low effective duration of 0.43 years while the ETF NEAR has an effective duration of 0.34 years. The ETF MINT has an effective duration of 0.01 years and SGOV has an effective duration of 0.09 years. Such short durations alleviate the interest rate risks associated with the bond investing.
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High-Yield Money-Market ETFs Hitting 52-Week Highs
The ultra short-term corner of the bond market has been an area to watch lately, given the current stock market uncertainty.ETFs like Enhanced Short-Maturity Strategy ETF (MINT - Free Report) , Short Maturity Bond iShares ETF (NEAR - Free Report) , Ultrashort Term iShares ETF (ICSH - Free Report) and iShares 0-3 Month Treasury Bond ETF (SGOV - Free Report) have been hitting 52-week highs lately. Let’s delve a little deeper.
Rising rate worries are gripping the whole world, crippling the investing scenario again with uncertainty. Volatility may become the name of the game thanks to a host of factors ranging from sticky inflation in the United States and other parts of the developed world, fears of a slowdown in China and the resultant pressure on supply chain and global growth, and geopolitical issues.
The S&P 500 recorded its first three-month losing streak in October since March 2020. The S&P 500 fell 2.2% in October. Meanwhile, indicator of the stock market volatility – iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX - Free Report) – has advanced 0.6% past month. As rising rate worries have been prevalent with chances of higher-for-longer U.S. interest rates, the bond investing is also at worse. This happens because, bond prices share an inverse relationship with bond yields. Investors worry about interest rate risks.
Why Cash is King
The road ahead in the stock market is a bit unclear. As investors aim to reduce their exposure to potential stock market downturns, money-market ETFs tend to gain. Investors should note that this kind of ultra-short-term bond ETFs have lower interest rate risks.
Hence, we believe cash and short-dated fixed income may play a greater role in adding stability to a portfolio. This is especially true given that the Fed will keep rates at a 22-year high level this year and short-term bond yields will remain elevated alongside. That would result in a similar rate for cash-like assets such as money-market funds.
High Yield Alongwith Lower Interest Rate Risks: Winning Proposition
As of Oct 31, yield on three-year U.S. treasury note was 4.90%, higher than the 10-year note (i.e., 4.88%). One -year note yielded 5.44% while one-month note yielded 5.56%. Notably, the fund MINT yields 4.38%, NEAR yields 3.95%, ICSH yields 4.25% and SGOV yields 4.38% annually. This means that these funds offer pretty high current income.
Meanwhile, the ETF ICSH has a low effective duration of 0.43 years while the ETF NEAR has an effective duration of 0.34 years. The ETF MINT has an effective duration of 0.01 years and SGOV has an effective duration of 0.09 years. Such short durations alleviate the interest rate risks associated with the bond investing.