Two bond ETF strategies that may help investors profit from rate hikes

Joanna Gallegos, the co-founder of BondBloxx, a fixed-income ETF issuer, claims interest rate jitters are driving investors toward the shorter end of the yield curve. Former JPMorgan head of global ETF strategy at JPMorgan, Gallegos believes this approach is sound. She told Bob Pisani on CNBC’s “ETF Edge” earlier this week. Yields are different. Gallegos predicted the Federal Reserve would increase interest rates by another 100 basis points in his forecast. “That’s what the market’s estimating … until around July. So, as interest rates are going up, people are a little uncertain about what’s going to happen to bond prices really far out,” she said. “If you go out on the longer side of duration, you’re taking on more price risk.” However, Main Management CEO Kim Arthur said he finds long-term bonds attractive as part of a barbell strategy. Long-term bonds, he said, are a valuable hedge against a recession. “It’s a portion of your allocation, but not the entire part, because, as we know, over the long haul equities will significantly outperform fixed income,” he said. “They’ll give you that inflation hedge on top of it.”
When asked whether the 60/40 stock/bond ratio is dead, Gallegos said it was true a year ago but not anymore. “That was … before the Fed increased rates 425 basis points last year, so everything shifted in terms of yields year over year,” she said. As of Friday’s close, the 10-year U.S. Treasury yield was approximately 3.7%, an increase of 84% from a year ago. The yield of the U.S. 6 Month Treasury was 5.14 percent, which represents a 589 percent jump in one year.