Investors Should Consider Bond ETFs Before the Fed Cuts: BondBloxx COO

Investors may want to hold on to fixed-income investments — and possibly even expand them — despite the Federal Reserve’s intention to cut interest rates this year.

“Your biggest mistake could be rushing back into stocks before considering all these fixed income opportunities,” BondBloxx co-founder and COO Joanna Gallegos told CNBC’s “ETF Edge” this week.

Although the benchmark will have reached its peak of over 5% at the end of 2023 U.S. Treasury bills with a 10-year term Interest rates have accelerated again in the past month. When the market closed on Thursday, interest rates were hovering around 4.31%. It reached 4.429% on Wednesday, a high for the year.

To effectively manage interest rate volatility, Gallegos suggests investors should look at exchange-traded funds that focus on intermediate-term bonds.

“When you enter the intermediate space, whether it’s credit or government bonds, you take on some risk and benefit from a total return upside when rates fall,” she said.

Tony Rochte of Morgan Stanley Investment Management recommends a similar medium-term strategy with vehicles like the Eaton Vance Total Return Bond ETF (EVTR) managed by his firm.

“It’s currently a six-year term, with a yield of about 6.6%,” the firm’s global head of ETFs said in the same interview. “It’s a portfolio of the best ideas.”

Rochte also pointed to municipal bond funds, such as the Eaton Vance Short Duration Municipal Income ETF (EVSM), for income-generating opportunities.

“We also converted a municipal bond mutual fund last Monday here at the NYSE into an ETF, symbol EVSM, and that’s a municipal fund. Again, a 3 1/2% yield, almost a 6% taxable equivalent yield. So these are very attractive rates in the current environment.”

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