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Investors Flock to Low-Duration ETFs for Rising Rate Protection


Investors nervous about rising Treasury yields have reportedly added more than $16 billion so far in 2013 to bond ETFs with low sensitivity to interest rates.

While there have been false alarms the past few years about higher rates, “ETF flows — which many consider to be the smart money — show that investors are seriously creeped out,” writes Eric Balchunas at Bloomberg Businessweek.

Within fixed-income sectors such as high-yield corporate bonds and Treasuries, many investors are buying ETFs with shorter durations to cushion the impact if rates rise more. [Two Short-Duration Bond ETFs To Consider]

They are also moving into bank loan funds such as PowerShares Senior Loan ETF (BKLN). Bank loans have a floating-rate feature which typically resets every one to three months based on short-term interest rates. [First Trust Launches Bank Loan ETF]

Balchunas reports that popular short-duration ETFs this year include Vanguard Short-Term Bond ETF (BSV) and iShares Barclays 1-3 Year Credit Bond Fund (CSJ). [ETF Spotlight: Vanguard Short-Term Bond]

Within junk bonds, investors have shown a preference for SPDR Barclays High Yield Bond ETF (JNK). [High-Yield Bond ETFs for Higher Rates]

Vanguard Short-Term Bond ETF

Full disclosure: Tom Lydon’s clients own BSV.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.