With an eye on mitigating rate risk, short-term bond funds have been the apple of fixed income investors’ eyes the past few years. But with rates falling, those same eyes may be wandering and looking at long-term bond ETFs. That said, Vanguard has a few to consider.
“The long end of the U.S. yield curve has attracted significant attention this year,” Vanguard noted. “Although forecasts have pointed toward slower economic growth, yields on longer-term securities have remained near their cyclical peaks, even as short-term yields have declined, resulting in a significant steepening of the yield curve.”
“Ongoing uncertainty regarding tariffs, coupled with expectations of sustained bipartisan deficit spending, has led investors to require higher yield premiums for bonds with extended maturities,” Vanguard added.
Those seeking long-term bond options who want broad exposure might find the Vanguard Long-Term Bond ETF (BLV) appealing. It seeks to track the performance of the Bloomberg U.S. Long Government/Credit Float Adjusted Index. The index, and thus BLV holdings, includes medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds with maturities of greater than 10 years.
To mitigate credit risk, BLV is mainly comprised of investment-grade debt (nothing below BBB) — with just over half coming from U.S. Treasuries. This helps to keep credit quality at the highest level. True to its long-term bond focus, the average effective maturity of its holdings is 22.1 years. For added diversification and mitigation of concentration risk, the fund has over 2,900 bonds in its portfolio.
BLV’s 30-day SEC yield is at 5.29% as of August 26. On top of that, the fund features a low expense ratio of 0.03%.
Treasury and Corporate Options
Fixed income investors may want to get targeted exposure in Treasuries to further mitigate credit risk. That said, the Vanguard Long-Term Treasury ETF (VGLT) would be ideal. VGLT includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities that exceed 10 years. Its 30-day SEC yield comes in at 4.89% (as of August 26).
Those on the opposite spectrum, who don’t mind the additional credit risk to extract more yield, can opt for corporate bonds. On that note, a more viable solution is the Vanguard Long-Term Corporate Bond ETF (VCLT). The fund tracks the Bloomberg U.S. 10+ Year Corporate Bond Index, which provides exposure to corporate debt issues that are U.S.-dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities exceeding 10 years. VCLT rewards investors with a 30-day SEC yield of 5.72% as of August 26.
Again, both funds feature ultra-low expense ratios of 0.03% or $3 per $10,000 invested.
For the full suite of Vanguard’s fixed income ETF products, click here.
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