Bond ETFs & Rising Rates: Why Duration Matters Now

Portfolio Strategies Content Hub Bond ETFs & Rising Rates: Why Duration Matters Now DJ Shaw October 2, 2026 Bonds slid in the third quarter as sticky inflation and heavy corporate borrowing pushed yields higher, Morningstar’s Sarah Hansen reported Wednesday. Key Takeaways: Treasury yields climbed to levels last seen during the financial crisis after the Fed raised rates in September. Long-dated bonds took the biggest hit in Q3, while shorter-duration bonds held up better. Thornburg’s multi-sector ETF runs a shorter duration and a higher yield to worst than its benchmark. The 10-year Treasury yield hit 5.26% and the 30-year reached 5.59%, the highest levels since the financial crisis, the report said. Because bond prices move opposite to yields, that climb weighed on returns. In September, the Federal Reserve also raised rates for the first time in more than three years, according to Morningstar. Bond futures markets are pricing in better-than-even odds of two more hikes before year-end. Still, higher yields also bring more income for bond investors, plus a bigger cushion against future price declines, according to strategists cited by Morningstar. See more: What Midterm Elections Do — & Don’t — Mean for Bonds Duration, or how sensitive a bond is to rate changes, also shaped results. Long-term Treasuries fell 7.65% in Q3, while short-term core bonds lost 0.89%, the report said. For Dominic Pappalardo, chief multi-asset strategist for Morningstar Wealth, the outlook comes down to two questions. “How high will rates go from here, and what will bring them back down?” he said. A Flexible Approach to Bonds Active, multi-sector funds offer one way to approach that uncertainty. Their managers can shift duration and sector mix as conditions change, rather than tracking a fixed index. The Thornburg Multi Sector Bond ETF (TMB) invests across sectors, geographies, credit qualities, and maturities, according to Thornburg. Its managers can use Treasury futures and other assets to navigate rate shifts and credit cycles. As of August 31, TMB’s effective duration was 4.2 years, versus 5.6 years for the Bloomberg U.S. Universal Index, according to Thornburg. Its yield to worst, the lowest yield possible without a default, was 5.5%, compared with 5.1% for the index. Corporate bonds made up 39% of the fund, versus 30.2% for the index, Thornburg data shows. Domestic Treasuries, by contrast, accounted for 18.9%, compared with 39.5% for the benchmark. Asset-backed securities, or bonds backed by pools of loans like auto debt, made up 14% of TMB, according to Thornburg. The index holds just 0.4%. Launched in February 2025, TMB has $260.98 million in assets and a 0.55% expense ratio, according to Thornburg. It pays monthly distributions and had a 4.6% 30-day SEC yield as of August 31. Treasuries still play a role, though. TMB’s largest single position, a U.S. Treasury security, made up 10.14% of assets as of October 1, according to Thornburg. For more news, information, and strategy, visit our Portfolio Strategies Content Hub . RELATED TOPICS 10-Year Treasury active active bond ETFs active management dj shaw interest rates morningstar Portfolio Strategies Content Hub Thornburg Asset Management thornburg-ps Earn free CE credits and discover new strategies