We are contemplating a tectonic shift on sovereign debt markets. Thus, longer-duration Treasuries are apparently in turmoil, but the front end is relatively stable. While issuance will increase by the end of the year, there is enough demand to absorb the upcoming supply of T-notes.

With interest rates around 5%, low-cost Treasury ETFs offer a compelling balance between returns and capital protection. Amid growing long-term supply concerns, the inverted Treasury yield curve has begun to “de-invert” in recent weeks, pushing UST10 and UST30 yields closer to over 5% of expected short-term Treasury bills (T-bills).

However, the front end remained supported by some foreign inflows (net buyers of U.S. debt and equities – preemptively, Japan, Britain, Belgium and other European countries’ funds) and still-healthy demand from money market funds.

Given that Treasury yields are expected to remain significantly higher than the long-term and earnings yields of the S&P 500 (SPY), investors are better compensated without risking capital or taking on duration risk. Best of all, investors comfortable with some reinvestment risk will find a low-cost Treasury ETF like the SPDR Bloomberg 3-12 Month Treasury Bond ETF (BILS) attractive.