These Fixed-Income ETFs Are Benefitting From The Fed's Stalled Rate-Cut Plans

The Federal Reserve has held key rates steady at 5.25%-5.5% since July 2023 to combat the skyrocketing inflation rates. While the overall price levels have stabilized since then, the consumer price index rose by 2.6% in May, slightly higher than the central bank's 2% target. 

The Fed had earlier predicted three rate cuts in 2024 in January. However, the outlook was revised to just one cut later this year due to sticky inflation rates. 

"Inflation in the U.S. remains elevated and I still see a number of upside inflation risks that affect my outlook. I remain willing to raise the target range for the federal funds rate at a future meeting should progress on inflation stall or even reverse," said Michelle Bowman, Fed governor and a voting member of the Federal Open Market Committee. "Reducing our policy rate too soon or too quickly could result in a rebound in inflation, requiring further future policy rate increases to return inflation to 2% over the longer run."

The high interest rates have been a boon for fixed-income securities, allowing investors to reap higher returns with minimal risk. 

Trending: If there was a new fund backed by Jeff Bezos offering a 7-9% target yield with monthly dividends would you invest in it?

 iShares Core Total USD Bond Market ETF

The iShares Core Total USD Bond Market ETF IUSB invests in high-quality government, corporate, and mortgage-backed securities. Approximately 37.25% of the ETF's portfolio is invested in U.S. treasuries, while nearly 15% is invested in bonds issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. 

The iShares Core Total USD Bond Market ETF is currently benefiting from higher yields, as the Federal Reserve holds the key rates steady. This makes it an attractive option for income-focused investors. 

The ETF pays $1.71 in dividends annually, yielding 3.8% on the current price. Notably, the iShares Core Total USD Bond Market ETF's dividends have risen nearly 22% year-over-year and at a compound annual growth rate (CAGR) of 12.3% over the past three years.

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Vanguard Short-Term Inflation-Protected Securities ETF 

The Vanguard Short-Term Inflation-Protected Securities ETF VTIP primarily invests in U.S. Treasury Inflation-Protected Securities (TIPS) with short and medium-term maturities, typically less than five years. 

Although inflation has slowed, the Fed’s decision to wait for further progress before decreasing interest rates provides a cushion against potential inflationary pressures. VTIP is an attractive alternative for investors looking to safeguard their portfolios from inflation while taking advantage of the current interest rate environment.

The Vanguard Short-Term Inflation-Protected Securities ETF pays $1.45 in dividends annually, yielding 3.02% on the current price. The ETF's dividend payouts have increased at a CAGR of 6.9% over the past three years and by 51.3% over the last 10 years. 

 SPDR Portfolio Corporate Bond ETF (SPBO)

The SPDR Portfolio Corporate Bond ETF (SPBO) invests in investment-grade corporate bonds. The ETF's top holdings include debt issued by JPMorgan Chase, Wells Fargo, and Bank of America Corp, among others. 

The SPDR Portfolio Corporate Bond ETF's portfolio primarily comprises investment-grade corporate debt issued by large-cap companies with stellar credit ratings. This makes it an intriguing fixed-income investment option since it provides both income and the potential for capital appreciation. The ETF pays $1.48 in dividends annually, yielding 5.19% on the current price. The SPDR Portfolio Corporate Bond ETF's dividends have risen at a CAGR of 16.8% over the past three years. 

Are You Missing Out On Higher Yields?

The current high-interest-rate environment has created an incredible opportunity for income-seeking investors to earn massive yields, but not through dividend stocks… Certain private market real estate investments are giving retail investors the opportunity to capitalize on these high-yield opportunities and Benzinga has identified some of the most attractive options for you to consider. 

For example, the Jeff Bezos-backed investment platform just launched its Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target 7% to 9% net annual yield paid to investors monthly. The best part? Unlike other private credit funds, this one has a minimum investment of only $100. 

Don't miss out on this opportunity to take advantage of high-yield investments while rates are high. Check out Benzinga's favorite high-yield offerings. 

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