ETF methods will be the answer to treasury buying and selling challenges

With short-dated Treasury bond ETFs seeing large inflows, more investors are turning to single bond strategies as a solution to macroeconomic challenges.

Buying government bonds usually involves opening an account with TreasuryDirect or through brokerage firms such as Charles Schwab. But Dave Nadig, financial futurist at VettaFi, said this can often be complicated.

“It’s not like you can just click a button to see the headline rate that you read in the Wall Street Journal or see on CNBC,” Nadig told Bob Pisani on CNBC’s “ETF Edge” Monday. “[And if] You want to do something of a rebalance on the 15th of the month, now you have a whole “different world of pain”.

TreasuryDirect and brokerage firms list all CUSIPs identifying financial instruments currently being auctioned. Nadig pointed out that this could include a range of products, from the last zero-coupon maturing bond that was released last month to a 15-year bond that is now maturing.

Dealing with this large number of products makes investors more prone to error when trying to rebalance or allocate single dollar amounts, he said.

“All of these things make it inconvenient and often more expensive than just buying a 15 to 20 basis point ETF that does it for you,” Nadig added.

If you’re looking to invest in short-dated government bonds, Nadig advises looking into ETF products like this one or a competitor’s ETF products that offer similar types of exposure.

On Friday, the yield on the 2-year government bond (US2Y) fell more than 4 basis points to 4.86%, but yields are still up 43 basis points this year. The 6-month government bonds (US6M) currently holds the highest yield at 5.137% at Friday’s close.

Bond ETF products on the rise

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

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

The company launched three single bond ETFs for the first time in August — the US Treasury 10 Year ETF (UTEN), the US Treasury 2 Year ETF (UTWO) and the US Treasury 3 Month Bill ETF (TBIL). Morris mentioned that increasing demand for the ETFs prompted the company to develop a broader range of offerings.

“People have asked us to give them a full guessing toolset,” he said. “So if the yield curve shifts, they can shift with it. We will give people what they asked for.”

More single bond ETF product offerings allow investors to further diversify their portfolios. Nadig explained that this diversification minimizes the risk of explosions in single emissions, such as B. a revaluation of a government bond or an earnings recession.

“You don’t want to put all your eggs in one basket, [and] Bonds have traditionally always been the snappy diversifier when stocks are snappy,” he said.

But Nadig pointed out that evaluating the stock/bond ratio isn’t the only way investors can take advantage here.

“This is a fantastic opportunity for the people… [to] Consider the role of other counter-correlated assets they may have,” he said.

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