As widely expected, the U.S. Federal Reserve cut the federal funds rate by 25 basis points for a second time this year. This gives fixed income investors an opportunity to reposition their portfolios with intermediate bonds or reconsider active exposure if they don't have it already.
BIV's long duration and low credit spreads make it sensitive to rising rates and macro risks, especially with current geopolitical tensions. Short-term rates may stay higher than expected due to higher oil prices that could be sustained by conflict in the Middle East. Long-term risks include US isolationist policies threatening the dollar's reserve status, which could worsen funding conditions and hurt US debt. Markets are clearly thinking about this.
With a steepening yield curve and rate cut expectations looming, the environment for the bond market can be a tricky one to navigate. That said, here are three bond funds from Vanguard to consider.
| XBER Exchange | US Country |
This index encompasses a diversified portfolio of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds. Specifically targeting bonds with maturities ranging from 5 to 10 years, it offers investors a structured approach to medium-term fixed income investment. The strategy behind the fund is meticulously designed to ensure a broad representation of the medium-term bond market. By employing a sampling process, it selects investments that closely replicate the performance and risk characteristics of the full index while ensuring liquidity and efficient management. The commitment to invest at least 80% of assets in bonds that are constituents of the index underscores a disciplined investment philosophy and focus on alignment with the index's objectives.
The index offers distinct investment solutions through its carefully curated selection of bonds, leveraging a comprehensive sampling process to achieve its objectives. The following are the main investment vehicles within its portfolio: