Treasury Yields jump ahead of inflation data

US government bond yields rose to 3.03% from 2.98% on Jun 8 on inflationary pressures-linked concerns ahead of the awaited CPI data. Earlier, this week, Treasury Secretary Janet Yellen acknowledged that the United States is currently facing “unacceptable levels of inflation.”

To contain it, the Federal Reserve has enacted 75 bps of rate hikes so far this year and is expected to decide many more hikes starting one anticipated interest rate top-up in the coming days.

investors are focused on finding out the ways to weather a sudden jump in the benchmark bond yields and increased inflationary expectations.

Higher inflationary expectations make it necessary to focus on an inflation-oriented fund. The underlying index, the Citi 30-Year TIPS (Treasury Rate-Hedged) Index — tracks the performance of long positions in the most recently issued 30-year TIPS and duration-adjusted short positions in US Treasury bonds of, in aggregate, approximate equivalent duration dollars to the TIPS. It yields 2.91% annually and charges 30 bps in fees.

The underlying NASDAQ US Multi-Asset Diversified Income Index is a modified market capitalization-weighted index designed to provide exposure to multiple asset segments, each selected to result in consistent and high yield for the index. The fund yields about 5.47% annually and charges 69 bps in fees.


The underlying FTSE High Yield (Treasury Rate-Hedged) Index comprises long positions in USD-denominated high-yield corporate bonds and short positions in US Treasury notes or bonds of approximate equivalent duration. Such a technique of interest-rate hedging makes the fund well-positioned to play in a rising rate environment. The fund charges 50 bps in fees and yields 4.74% annually.

Value funds normally fare better in a rising-rate environment. Investors should note that value stocks underperform growth stocks in a low-rate environment. With the yield on 10-year Treasuries making an uptrend, there will be a shift from growth to value shares.

This ETF offers exposure to US floating rate bonds, whose interest payments adjust to reflect changes in interest rates. Since the coupons of these bonds are adjusted periodically, they are less sensitive to an increase in rates compared with traditional bonds. As such, unlike fixed coupon bonds, these will not lose value when the rates go up. Hence, it protects investors from capital erosion in a rising rate environment. The fund charges 15 bps in fees.