Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
A bond ETF in the spotlight
Hans Oudshoorn
Summary: Now that interest rates have risen globally, bonds - especially short-term loans - offer opportunities for investors again.
Level: Any experience
After the sharp falls in bond prices in 2022, opportunities are re-emerging. Globally, short-term interest rates have been raised sharply by central banks whilst long-term rates lag behind, so the 'short-term belly of the yield curve' is the most promising. Currently, many existing bonds - including short ones - are quoted below par and in the recently published Quarterly Outlook "My name is Bond. Long Bond(s)." as well as the article “Why are US T-bills on everybody’s lips?” you can read that new bonds are again offering (higher) coupon rates that we have not seen in years.
As a result, I recently have received a lot of questions - from clients, colleagues and friends - about bond investment opportunities. Therefore, with the falling prices and current higher coupon rates in mind, I would like to share an idea for fixed income securities with short maturities.
In this article I first briefly zoom in on the issuer, consider the investment approach of the ETF and discuss the costs, dividends and risks. I also assume you are familiar with bonds and ETF’s.
iShares $ Treasury Bond 1-3yr UCITS ETF
Founded in 1988, New York-based asset manager BlackRock has become the world's largest asset manager. The company now has 19,800 employees and some US$8,600 billion (!!!) under management. It offers a wide range of investment solutions that allow investors and clients to achieve their financial goals.
For those with dollars to invest as well as accepting currency risk, BlackRock offers an interesting ETF from the iShares family: the iShares $ Treasury Bond 1-3yr UCITS ETF with US$9.9 billion in invested assets. There are several currency flavours of the title; it is also tradable on various exchanges. I discuss the variant which pays incoming coupon rates semi-annually (March and September) in the form of dividends (ISIN IE00B14X4S71).
The approach
The approach of this ETF is quite simple. The portfolio consists of 92 US government bonds with an average rating of AA, or investment grade. Currency-wise, the dollar is, of course, purveyor, so there is currency risk if you invest in the EUR or GBP variant. The benchmark is the ICE U.S. Treasury 1-3 Year Bond Index, which they have managed to follow neatly since its inception on 2 June 2006 except for a cost friction.Ongoing charges fee, dividends and risks
The ongoing charges fee for this ETF is a very sharp 0.07% per annum. Underlying, the net yield (effective yield) of the ETF is currently 5.1% and the average maturity is about 2 years. Of course, the payout could be lower in the future. After all: the value of your investment and coupons can fluctuate. Past performance is no guarantee for the future.
Overall, the ETF offers a great way to invest in short-term US government bonds in a diversified manner. Particularly for investors who want income from their assets, want more portfolio stability and (partly) wish to avoid the vagaries of the stock market. Add BlackRock's knowledge and experience and the five stars at Morningstar are explained. Is that all? No. The Morningstar Analyst Rating™ has the highest attainable status of ‘Gold’.
And the main risks? Despite the fact that T-bills are one of the safest investments available to USD investors, you should know that they carry interest rate risk and can move substantially around future debt ceiling issues. Besides that, as mentioned above, you have currency risk if you invest in the non-dollar variants of the ETF.
What else? You buy the investment product by the piece, just like a stock. Want to know more? Take a look at the infopage of iShares.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Head of FX Strategy
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Head of FX Strategy
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer