How Target Duration ETFs Provide Precise Exposure to U.S. Treasury

The annual inflation rate fell for a second straight month to 8.3% in August, but core inflation accelerated to 6.3%, suggesting that inflationary pressure remains in the economy. Core inflation removes the impact of volatile food and energy prices from the inflation calculation.

In response, the Federal Reserve increased the federal funds rate for its third straight meeting. The central bank hiked rates by 75 basis points to the 3.00% to 3.25% range, the highest level since 2008. The CME’s FedWatch tool projects that interest rates will continue to rise to the 4.50% to 4.75% range by the February 2023 meeting.

Bond prices and interest rates move in opposite directions. After all, if you own a bond paying a 2% interest rate and rates rise, then the 2% yield doesn’t look as attractive. And, of course, investors will sell these less attractive bonds to capitalize on new issues with higher interest rates, resulting in lower prices for them on the open market.

Many investors use duration to measure interest rate risk. In short, duration is a bond’s weighted average time until all of its cash flows are paid (in years). By accounting for the present value of future bond payments, duration helps investors evaluate and compare bonds independent of their term while accounting for interest rates.

Check out all U.S. Treasury bond based mutual funds and ETFs here.

BondBloxx Investment Management recently launched eight target duration funds focused on U.S. Treasuries. In particular, the funds track a subset of duration-constrained U.S. Treasury bonds with more than $300 billion outstanding. As a result, investors can achieve target durations using Treasuries without using maturies.

“In today’s rapidly changing interest rate environment, key priorities for portfolio managers and investors are earning higher yields on strategic cash positions, precisely managing duraiton risk, and having effective collateral tools,” said JoAnne Bianco, BondBloxx Client Portfolio Manager, in a news release announcing the new funds.

The new products include:

Duration is a critical consideration for investors as interest rates continue to rise. Fortunately, new target duration funds from BondBloxx make it easier than ever to invest in specific U.S. Treasuries based on their duration rather than relying on maturity or other less accurate factors regarding mitigating interest rate risk.

Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.