Two bond ETF strategies that can help investors profit from interest rate hikes

According to Joanna Gallegos, co-founder of fixed income ETF issuer BondBloxx, the interest rate jitters are meaningfully pushing investors toward the shorter end of the yield curve.

Gallegos, former head of global ETF strategy for JPMorgan, thinks it’s a good approach.

“It’s an intuitive trade. This isn’t 2022. This isn’t even five years ago. The returns are very fundamentally different,” she told Bob Pisani on CNBC’s “ETF Edge” earlier this week.

Gallegos predicted that the Federal Reserve will raise interest rates by another 100 basis points.

“That’s what the market is estimating… until about July. So, as interest rates go up, people are a little bit unsure about what’s going to happen with bond prices that are really way off,” she said. “If you go out on the longer end of the term, you take 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 part of your allocation, but not the whole part, because, as we know, equities will significantly outperform fixed income in the long run,” he said. “They give you that inflation hedge on top.”

Gallegos, when asked if the 60/40 stock-to-bond ratio is dead, said it was true a year ago, but not anymore.

“That was… before the Fed raised rates by 425 basis points last year, so everything shifted in terms of yields from year to year,” she said.

By Friday’s close, the US 10 Year Treasury was up about 3.7% – up 84% from a year ago. Meanwhile, the six-month US Treasury yield was about 5.14%, reflecting a one-year increase of 589%.


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