This article was originally published on ETFTrends.com.
Benchmark U.S. Treasury yields nudged lower after the Labor Department revealed that the number of job openings in August hit a record high. According to the data, 7.1 million job openings were available on the last business day of August.
The benchmark 10-year yield went down to 3.16, while the 30-year yield dropped to 3.335. In addition, short-term yields showed the 2-year ticking lower to 2.87 and the 5-year to 3.02.
Furthermore, the latest report by the Bureau of Labor Statistics showed the unemployment dropped to a 50-year low of 3.7% percent, while average hourly earnings rose by 8 cents, which matched the gain in August.
"The report has been trending higher for a long time now, so I think the markets got immune to a lot of these prints, but I'd like to think the overall data is still fantastic, because the quit rate was higher in the low-wage categories such as leisure and hospitality," said Thierry Wizman, global interest rates and currencies strategist at Macquarie Group.
"There was always sort of a problem trying to fill skilled labor, but now it looks like it's getting a bit more problematic to fill even the lower-paying positions," Wizman added.
Short-Term Bond Options
The latest jobs data comes as Treasury yields have been climbing, causing investors to flock to shorter-duration debt issues as opposed to those with longer maturities.
"In fixed income, short term duration continues to be the bell of the ball as more money flowed into the space.," said Brian Gilman, ETF Sales & Trading at Virtu Financial.
Investors can limit exposure to long-term debt issues and focus on maturity profiles. An example would be the SPDR Portfolio Short Term Corp Bd ETF (SPSB) , which seeks to provide investment results that correspond to the performance of the Bloomberg Barclays U.S. 1-3 Year Corporate Bond Index.
Related: Top 56 High Yield Bond ETFs
SPSB invests at least 80 percent of its total assets in securities designed to measure the performance of the short-termed U.S. corporate bond market. Ideally, shorter-term bond issues with maturities of three to four years are ideal to minimize duration exposure should the bull market enter a correction phase.
"To mitigate the impact of rising short-term rates, investors can consider targeting specific duration profiles," said Matthew Bartolini, Head of SPDR Americas Research. "In the past year, targeting the 1-3 year corporate maturity band vs. the 1-5 year band would have delivered 60 basis points of outperformance. Yields are comparable (3.31% vs. 3.41%), but the 1-3 year space has almost one year less of duration."
Another short-term bond ETF option is the iShares 1-3 Year Credit Bond ETF (CSJ) , which tracks the investment results of the Bloomberg Barclays U.S. 1-3 Year Credit Bond Index where 90 percent of its assets will be allocated towards a mix of investment-grade corporate debt and sovereign, supranational, local authority, and non-U.S. agency bonds that are U.S. dollar-denominated and have a remaining maturity of greater than one year and less than or equal to three years–this shorter duration is beneficial during recessionary environments.
With more rate hikes expected to come in the Fed's current monetary policy agenda, Bartolini identifies the pressure on bond portfolios this has been effectuating irrespective of whether they are long or short duration. In addition, fiscal policy has also been a major factor in bond performance.
"Longer or intermediate bond funds have been affected by the Fed’s monetary policy actions. However, fiscal policy has also had an impact," said Bartolini. "The 10-year spiked at the beginning of the year once the tax cuts were passed and debt issuance by the US government increased to fund the cuts, expanding the already high budget deficit. These actions have had an impact on inflation and longer term rates, sending them higher and bonds lower, leading to losses on particularly bond funds sensitive to those key rate durations."
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