The saying “May you live in interesting times” is becoming relevant in the bond market for all the wrong reasons. “Interesting” usually means “trouble.”
Fortunately, advisors and fixed income investors have avenues for mitigating trouble, including rate-hedged ETFs such as the WisdomTree Interest Rate Hedged U.S. Aggregate Bond Fund (AGZD). In fact, it’s not a stretch to say AGZD is exceedingly relevant today. The fund, which turns 13 years old in December, is made for this bond market moment.
Those aren’t outlandish statements because AGZD, which tracks the Bloomberg Rate Hedged U.S. Aggregate Bond Index, Zero Duration, is designed to mitigate the negative effects of rising Treasury yields. AGZD could be ideal at a time when it’s not just yields on U.S. government debt that are moving in the wrong direction.
“A global bond selloff worsened on Tuesday, with government borrowing costs approaching multi-decade highs in the United Kingdom and Japan as renewed Middle East hostilities exacerbated inflation fears,” according to Morningstar. “US 10-year Treasury yields rose 0.03 percentage points to 4.78%, their highest level since January 2025. Japan’s benchmark 10-year bond yield hit 3%, its most elevated since 1996.”
AGZD Is a Problem Solver
It’s often said that some novel ETFs are solutions in search of problems. In the case of AGZD, the ETF is a credible solution to problems unveiling themselves in real time. For example, many fixed income investors love the convenience afforded to them by traditional aggregate bond ETFs. However, those funds are loaded with rate-sensitive Treasuries.
AGZD keeps the aggregate while disposing of the rate sensitivity – an admirable and coveted combination when government bond yields surge. This ETF’s utility may be attractive, given that the Federal Reserve may have no choice but to raise interest rates.
“That was fueled by comments from new US Federal Reserve chair Kevin Warsh’s debut speech last week at an economic symposium in Jackson Hole, Wyoming, in which he indicated his commitment to fighting inflation,” added Morningstar. “Investors now forecast a two-thirds chance of a rate hike later this month, according to the CME FedWatch Tool, up from less than 40% a week ago.”
AGZD could also be prescient as more investors voice discontent with AI spending plans and swelling government liabilities.
“Government debt yields have been marching higher for much of this year, as investors have also grown wary over ballooning government debt and increased corporate debt issuance to fund the massive artificial intelligence infrastructure buildout,” concluded Morningstar.
Originally posted on ETF Trends
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This article was prepared as part of WisdomTree’s general paid sponsorship of VettaFi | ETF Trends. This specific content within and any opinions expressed therein belong solely to VettaFi and do not reflect the opinion or analysis of WisdomTree, its employees, or its affiliates. Content published on VettaFi | ETF Trends is provided for educational purposes only and should not be considered investment or tax advice. For investment or tax advice, please consult a financial professional.
WisdomTree is an independent company, unaffiliated with VettaFi | ETF Trends. WisdomTree has not been involved with the preparation of the content supplied by VettaFi | ETF Trends. It does not guarantee, or assume any responsibility for its content.
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