Hello! This is MarketWatch reporter Isabel Wang bringing you this week’s ETF Wrap. In this week’s edition, we look at how ETF investors can navigate the choppy financial markets which remain on edge after a sell-off in U.S. government bonds drove long-term borrowing costs to the highest level in more than a decade, undercutting stock prices.
Meanwhile, a positive Treasury term premium, or the compensation that investors require for the risk of holding a Treasury to maturity, have also contributed to a steep sell-off as a ballooning U.S. budget deficit and the Treasury’s need to issue more debt have pushed Treasury prices to 17-year lows.
Ultra short-term bond funds ETF investors that still favor bonds can consider hiding in ultra short-term bond funds to avoid duration risk as the Fed may still need to raise interest rates to curb inflation by the end of 2023, said Neena Mishra, director of ETF research at Zacks Investment Research. TLT attracted a total of $686 million inflows in the week to Wednesday, ranking the 8th out of over 800 ETFs that MarketWatch tracked in the past week, according to FactSet data.
However, small caps IWM are by nature more sensitive to higher interest rates compared with a lot of the larger-cap stocks which have the ability to be “nimble” with strong cash flow, said Urbanowicz.
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