3 ETFs To Watch As Interest Rate Trends Take A Turn

President Donald Trump has renewed his calls for the Federal Reserve to cut interest rates, urging immediate action following the introduction of new tariffs. His position puts another layer of uncertainty on the already complicated economic landscape, with the Fed deciding to leave the rates at 4.25%-4.50% but indicating increasing worry about inflation and weakening growth.

The Federal Reserve’s more accommodative policy stance on quantitative tightening, along with lower revisions in growth forecasts and higher inflation expectations, have put market participants on notice. On the bright side, we’ve identified three ETFs that might flourish if interest rates hold steady or begin declining.

1. Vanguard Ultra-Short Treasury ETF VGUS

As interest rate volatility approaches, ultra-short-term bond funds such as VGUS represent a compelling hedge. This ETF reduces interest rate sensitivity while exposing investors to short-term Treasury debt. If rates stabilize or start to fall, VGUS shareholders may enjoy appreciating bond prices alongside steady yields.

VGUS is especially well-positioned for those wanting a low-risk, cash-parking alternative while still reaping incremental profits from a bond market rally. Due to the Fed’s conservative stance and uncertainty in the markets, ultra-short Treasury ETFs remain a good option.

2. Vanguard 0-3 Month Treasury Bill ETF VBIL

Another option is VBIL, an ETF that invests in Treasury bills with maturities ranging from 0-3 months. Like VGUS, this ETF has the aim of minimizing duration risk and providing investors with a means of capital preservation and competitive yields.

With at least two rate cuts possible this year, Treasury bill ETFs stand to gain from falling yields, making them generally more attractive. Even if rates remain constant, VBIL offers an extremely secure vehicle to hold cash in the near term.

3. Simplify Downside Interest Rate Hedge Strategy ETF RFIX

For those investors who want to take an active stance on declining interest rates, RFIX presents an interesting opportunity. This ETF is structured to gain when long-term interest rates fall. It is essentially the inverse of Simplify’s PFIX, which gains from increasing rates.

With the Fed having commenced slowing the rate of balance sheet reduction, RFIX would be a good strategic bet if economic data does further deteriorate and rate reductions become a reality. Investors who want to protect on the downside while capturing the hoped-for benefit of falling yields may want RFIX in their portfolios.

Final Thoughts

Although the Fed has indicated restraint in its monetary policy stance, uncertainty within the markets continues. Whether rates remain flat or lower over time, ETFs such as VGUS, VBIL, and RFIX offer unique strategies for riding varying interest rate trends.

For those interested in conservative investment options, these ETFs may be worth considering for their focus on Treasuries, short-duration cash substitutes, or strategies aimed at mitigating interest rate risk.

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Image created using artificial intelligence via Midjourney.