Interest Rate Hedged Bond ETFs
The Risk of Normalizing Interest Rates
Time to get ready for rising rates?
Hand wringing over the health of the economy has led to fevered debate over the future path of interest rates. Much of the conversation, however, has been focused on what the Fed might do and when. But even if you believe the Fed will do nothing in the near term, does that mean you don't need to worry about interest rate risk? In a word, no.
Fed Funds Rate vs. the yield curve
The Fed only controls the Fed Funds Rate, not the rest of the yield curve. Historically, the yield on 10-Year U.S. Treasurys tends to run about 2.5% above inflation. With inflation running right around the Fed's target of 2%, a "normal" 10-year yield should be around 4.5%. Rates could "normalize" without any change in the Fed Funds Rate. And if they did rise to "normal" levels, bond prices could take a big hit.
So don't wait for the Fed before taking action. ProShares offers two interest rate hedged bond ETFs (IGHG and HYHG) that combine portfolios of bonds with built-in hedges against the effects of rising rates. These ETFs enable investors to maintain portfolios of investment grade or high-yield bonds, which will still have their own inherent risks. But they target zero interest rate risk by adding a second portfolio that shorts Treasury bonds, so the combined ETF targets a duration—an interest rate risk—of zero. Consider getting ready now, before it's too late.
Where could yields head if they "normalize"?
Source: Bloomberg, CPI was 2.2% as of 9/30/16.
For illustrative purposes only. Click here for fund performance.
Performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when sold or redeemed, may be worth more or less than the original cost. Shares are bought and sold at market price (not NAV) and are not individually redeemed from the fund. Brokerage commissions will reduce returns. Current performance may be lower or higher than the performance quoted. For standardized returns and performance data current to the most recent month end, see Performance.
Don't wait for the Fed to raise rates—they may "normalize" on their own. Get ready now with ProShares interest rate hedged bond ETFs, which combine portfolios of bonds with built-in hedges that target a duration of zero.