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Treasury buyback expansion fails to curb yields, boosting bond ETF appeal
Vanguard Short-Term Bond ETF BSV and Vanguard Intermediate-Term Corporate Bond ETF VCIT cite trailing-12-month yields of about 4% and 5%, respectively, as distribution potential rises with higher bond rates.
Bond exchange-traded funds are drawing renewed attention as U.S. Treasury yields surge, according to MarketBeat Ratings, with rising yields increasingly feeding through to bond-fund income payouts.
MarketBeat Ratings points to the Treasury’s effort to support market liquidity by expanding buyback operations for longer-dated nominal coupon securities. The Treasury said it would at least double the size of buybacks, raising the per-operation maximum to $4 billion, then later set a Sept. 10 10- to 20-year buyback at up to $6 billion and scheduled a Sept. 24 20- to 30-year buyback at $4 billion or more.
MarketBeat Ratings says the approach has not contained borrowing costs, noting that the 10-year Treasury recently hit its highest level since 2007 and is trading around 5%, after rebounding quickly from a July 2020 low of 0.55%. The outlet also links renewed pressure on rate-sensitive equities to the broader higher-rate environment.
For income-focused investors, MarketBeat Ratings highlights that ETF distributions can adjust as lower-rate bonds mature and are replaced with higher-yielding securities, pointing to BSV with about a 4.0% trailing-12-month yield and VCIT with about a 5.0% trailing-12-month yield as potential beneficiaries.