If you’re looking for a way to hedge inflation and interest rate hikes, bond ETFs may be right up your alley. As the name suggests, bond ETFs will only consist of bonds with some ETFs choosing to represent the total market and some choosing to cut it into pieces, e.g., investment-grade or short-term bonds. Bond ETFs can be passively or actively managed but most follow the passive model and track a specific index. There are a lot of benefits that come with bond ETFs such as, monthly dividends, interest payouts, and portfolio diversification or hedging.
Here are a few bond ETFs to consider.
ProShares UltraShort 20+ Year Treasury (TBT) – TBT looks to offer investors -2x exposure to daily moves in Treasury bonds that have more than 20 years left to maturity, offering a daily reset which allows investors a way to hedge or position against rising interest rates. The -2x leverage of TBT makes it more of a short-term asset rather than something to hold. This instrument works best when the Fed is raising rates and inflation is on the rise. This fund is up 73% YTD.
iShares 20 Plus Year Treasury Bond ETF (TLT) – Similar to TBT, TLT follows an index of Treasury bonds with more than 20 years to maturity with an average of 26 years. TLT offers a low expense ratio as well as liquidity and could see gains of 25% if yields are to drop just 1%. This instrument works best when the Fed is cutting rates. This fund is down 27% YTD.
Direxion Daily 20+ Year Treasury Bear 3X Shares (TMV) – TMV is interesting in that it seeks daily investment results of 300% of the inverse performance from its tracking index, the ICE U.S. Treasury 20+ Year Bond Index. The index includes fixed rate bonds that have $300 million or more outstanding. Single day trading makes TMV a much more risky investment vehicle but one that can be utilized by active investors who understand the leverage risk. This instrument works best when the Fed is raising rates and inflation is on the rise. This fund is up 121% YTD.