ETF strategies may be the solution to Treasury trading challenges

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Why use an ETF to buy bonds?

As short-term bond ETFs see large flows, more investors are embracing single-bond strategies as a solution to macroeconomic challenges.

Buying Treasury bonds usually means opening an account on TreasuryDirect or through brokerage firms like Charles Schwab. But Dave Nadig, a financial advisor at VettaFi, said this can often be complicated.

“It’s not true that you can just click a button, find out the high you read in The Wall Street Journal or see on CNBC,” Nadig told Bob Pisani on CNBC’s “ETF Edge” on Monday .”[And if] you want to do something like rebalancing on the 15th of the month, now you have ‘another world of pain’.

TreasuryDirect and brokerage firms list all CUSIPs, which identify financial instruments, currently at auction. Nadig noted that these could include a range of yields from the latest zero-coupon bond issued last month to a 15-year note that now matures end

Dealing with this large number of products makes investors more prone to errors when trying to rebalance or make individual dollar allocations, he said.

“All of these things make it inconvenient and often more expensive than just buying a 15 to 20 basis ETF that’s going to do it for you,” Nadig said.

When trying to invest in short-term Treasury bonds, Nadig advised looking for ETF products like this or competing ETF products that offer the same type of exposure.

On Friday, the 2 Year Treasury yield (US2Y) fell over 4 basis points to 4.86%, but yields are still up 43 basis points this year. The Treasury 6 months (US6M) currently holds the highest yield with 5.137% as of Friday’s close.

The exchange rate of the Bond ETF is rising against the dollar

F/m Investments – a $4 billion multi-market investment advisor – is preparing to launch six new single-bond ETFs, the company’s CIO Alex Morris revealed Monday during the segment.

“You see the 6-month, 3-year, 5-year, 7-year, 20-year and 30-year coming out,” he said.

The firm first launched three single-bond ETFs in August — the 10-Year US Treasury ETF ( UTEN ), the 2-Year US Treasury ETF ( UTWO ), and the 3-Month US Treasury Bill ETF ( TBIL ). Morris cited an increase in demand for the ETFs that led the company to develop a wider range of offerings.

“People have asked us to give them a full-rate machine,” he said. “So, when the yield curve changes, they can move with it. We are going to give the people what they have asked for.”

Increased single-bond ETF yield offerings allow investors to further diversify their portfolios. Nadig explained that this diversification reduces the risk of a one-off blow, such as a Treasury bond repricing or a decline in earnings.

“You don’t want to have all your eggs in one basket, [and] Bonds have always been so diversified when equities zig,” he said.

But Nadig pointed out that stock/bond ratio valuation isn’t the only opportunity here for investors to take advantage of.

“This is a great opportunity for people… [to] consider the role of other assets that may be associated with them,” he said.

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