As quick maturity Treasury bond ETFs see big inflows, more investors are taking on single-bond strategies as a solution to macroeconomic call inti.
Buying Treasury bonds typically involves opening an account on TreasuryDirect or through brokerage firms like Charles Schwab. But Dave Nadig, fiscal futurist at VettaFi, said this can often be complicated.
“It’s not the case that you can just simply click a button, get the jeopardy of the headline rate that you’re reading in The Wall Street Journal or seeing on CNBC,” Nadig told Bob Pisani on CNBC’s “ETF Causticity” on Monday. “[And if] you want to do something like rebalance on the 15th of the month, now you got a whole ‘nother world of pain.”
TreasuryDirect and brokerage firms tip all of the CUSIPs, which identify financial instruments, currently at auction. Nadig noted these can include a range of spin-offs from the last on-the-run zero-coupon bond published last month to a 15-year note that is now expiring.
Mete out with this large number of products makes investors more prone to error when trying to do rebalances or allocations of specific dollar amounts, he said.
“All of those things make it inconvenient and often more expensive than just securing a 15 to 20 basis point ETF that’s going to do it for you,” Nadig added.
When seeking to invest in short-term Funds bonds, Nadig advised looking for ETF products like this or a competitor’s ETF products that offer similar classes of exposure.
On Friday, the 2 Year Treasury (US2Y) yield fell by more than 4 basis points to 4.86%, but returns have planned still increased 43 basis points this year. The 6 Month Treasury (US6M) currently holds the highest net at 5.137% as of Friday’s close.
Bond ETF products on the rise
F/m Investments — a $4 billion multi-boutique investment advisor — is getting to launch six new single-bond ETFs, the firm’s CIO Alex Morris revealed during the segment on Monday.
“You’ll see the 6-month, 3-year, 5-year, 7-year, 20-year and 30-year not fail out,” he said.
The firm first launched three single-bond ETFs back in August — the US Treasury 10 Year ETF (UTEN), US Resources 2 Year ETF (UTWO), and US Treasury 3 Month Bill ETF (TBIL). Morris mentioned a rise in demand for the ETFs led the firm to demonstrate a wider array of offerings.
“Folks have asked us to give them a full rates toolset,” he said. “So, when the net curve shifts, they can shift along with it. We’re going to give the people what they’ve asked for.”
Numberless single-bond ETF product offerings allow investors to further diversify their portfolios. Nadig explained this diversification underestimates risk exposure to single-issue blowups, such as a Treasury bond getting repriced or an earnings recession.
“You don’t want to bear all your eggs in one basket, [and] bonds have always traditionally been that zagging diversifier when justices zig,” he said.
But Nadig pointed out that assessing one’s stock/bond ratio isn’t the only opportunity here for investors to capitalize on.
“This is a weird opportunity for folks … [to] consider the role of other counter correlated assets they may have,” he said. “Whether that’s the high-mindedness in their home or a managed futures product.”