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No Rate Cut Until 2H of 2024? High-Yield Short-Term Bond ETFs to Buy
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Stocks slumped to start Q2 as an interest rate cut by the Fed may come later than anticipated before. The yield on the benchmark 10-year Treasury rose to around 4.38%, hovering at its highest levels of 2024, up from 3.95% recorded at the start of 2024.
Hotter-than-expected manufacturing readings, which came alongside increases in prices paid, have led to doubts that the Fed will cut rates in the first half of the year. According to the CME FedWatch Tool, there is a 97.1% chance that the Fed will keep rates the same in the May meeting. For the mid-June meeting, there is a 61.8% chance of a 25 basis point rate cut.
Short-Term High-Yield Bonds to Play?
Despite earlier speculations of rate cuts as early as in the first half of 2024, market watchers now expect the Fed to act not before the second half of 2024. The FOMC emphasized the need for greater confidence in sustained inflation movement towards the target level.
The road ahead in the investing world is a bit unclear. Although the stock market remained at a lofty level, overvaluation concerns remain. Plus, we’ll have presidential election this year, which may cause quite an uncertainty.
Hence, we believe cash and short-dated fixed income may play a greater role in adding stability to a portfolio. Short-term bonds have lesser interest rate risks. Also, at the current environment, short-term bonds are yielding higher. Below we highlight a few money-market ETFs and their performance plus yields.
ETFs in Focus
Federated Hermes Short Duration High Yield ETF (FHYS - Free Report) ) – Yield 6.68% annually
The fund looks to provide high current income by investing at least 80% of its assets in investments rated below investment grade. The effective duration of the fund’s portfolio will generally be less than 3.0 years. The fund charges 51 bps in fees.
PGIM Ultra Short Bond ETF (PULS - Free Report) – Yield 6.12% annually
This ETF is active and does not track a benchmark. The PGIM Ultra Short Bond ETF seeks total return through a combination of current income and capital appreciation, consistent with preservation of capital. The fund charges 15 bps in fees.
The underlying Fidelity Low Duration Investment Grade Factor Index is designed to optimize the balance of interest rate risk and credit risk such that both returns and risk measures may be improved relative to traditional U.S. investment grade floating rate note indices. The fund charges 15 bps in fees.
The Invesco Ultra Short Duration ETF (Fund) is an actively managed ETF that seeks to provide returns in excess of cash equivalents while also seeking to provide preservation of capital and daily liquidity. The Fund will invest at least 80% of its total assets in fixed income securities of varying maturities, but with an average duration of less than one year. The fund charges 22 bps in fees.
The fund seeks to obtain a high level of current income consistent with preservation of capital. Normally investing at least 80% of assets in investment-grade debt securities (those of medium and high quality) of all types that Fidelity Management & Research Company LLC (FMR) (the Adviser) believes have positive environmental, social and governance (ESG) benefits and repurchase agreements for those securities. The fund charges 20 bps in fees.
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No Rate Cut Until 2H of 2024? High-Yield Short-Term Bond ETFs to Buy
Stocks slumped to start Q2 as an interest rate cut by the Fed may come later than anticipated before. The yield on the benchmark 10-year Treasury rose to around 4.38%, hovering at its highest levels of 2024, up from 3.95% recorded at the start of 2024.
Hotter-than-expected manufacturing readings, which came alongside increases in prices paid, have led to doubts that the Fed will cut rates in the first half of the year. According to the CME FedWatch Tool, there is a 97.1% chance that the Fed will keep rates the same in the May meeting. For the mid-June meeting, there is a 61.8% chance of a 25 basis point rate cut.
Short-Term High-Yield Bonds to Play?
Despite earlier speculations of rate cuts as early as in the first half of 2024, market watchers now expect the Fed to act not before the second half of 2024. The FOMC emphasized the need for greater confidence in sustained inflation movement towards the target level.
The road ahead in the investing world is a bit unclear. Although the stock market remained at a lofty level, overvaluation concerns remain. Plus, we’ll have presidential election this year, which may cause quite an uncertainty.
Hence, we believe cash and short-dated fixed income may play a greater role in adding stability to a portfolio. Short-term bonds have lesser interest rate risks. Also, at the current environment, short-term bonds are yielding higher. Below we highlight a few money-market ETFs and their performance plus yields.
ETFs in Focus
Federated Hermes Short Duration High Yield ETF (FHYS - Free Report) ) – Yield 6.68% annually
The fund looks to provide high current income by investing at least 80% of its assets in investments rated below investment grade. The effective duration of the fund’s portfolio will generally be less than 3.0 years. The fund charges 51 bps in fees.
PGIM Ultra Short Bond ETF (PULS - Free Report) – Yield 6.12% annually
This ETF is active and does not track a benchmark. The PGIM Ultra Short Bond ETF seeks total return through a combination of current income and capital appreciation, consistent with preservation of capital. The fund charges 15 bps in fees.
Fidelity Low Duration Bond Factor ETF (FLDR - Free Report) ) – Yield 5.48% annually
The underlying Fidelity Low Duration Investment Grade Factor Index is designed to optimize the balance of interest rate risk and credit risk such that both returns and risk measures may be improved relative to traditional U.S. investment grade floating rate note indices. The fund charges 15 bps in fees.
Invesco Ultra Short Duration ETF (GSY - Free Report) ) – Yield 5.37% annually
The Invesco Ultra Short Duration ETF (Fund) is an actively managed ETF that seeks to provide returns in excess of cash equivalents while also seeking to provide preservation of capital and daily liquidity. The Fund will invest at least 80% of its total assets in fixed income securities of varying maturities, but with an average duration of less than one year. The fund charges 22 bps in fees.
Fidelity Sustainable Low Duration Bond ETF (FSLD - Free Report) ) – Yield 5.13% annually
The fund seeks to obtain a high level of current income consistent with preservation of capital. Normally investing at least 80% of assets in investment-grade debt securities (those of medium and high quality) of all types that Fidelity Management & Research Company LLC (FMR) (the Adviser) believes have positive environmental, social and governance (ESG) benefits and repurchase agreements for those securities. The fund charges 20 bps in fees.