Yields on long-term Treasuries have broken out to 16 year highs. This has unleashed considerable volatility for bonds amid uncertainty about the economy’s trajectory and the Fed’s next move.

At the same time, many investors are looking to take advantage of this weakness and increase their exposure to the asset class especially with yields at such attractive levels. However, the current environment may be more suitable for active fixed income ETFs like the T. Rowe Price QM US Bond ETF (TAGG) rather than the typical passive options. 

Active managers have more freedom and flexibility when it comes to credit quality and duration, meaning they are able to take advantage of market inefficiencies. And, there are likely more inefficiencies in the current environment due to the cloudy economic and monetary outlook.

As an example, TAGG invests in investment-grade fixed income securities, including corporate and government debt and mortgage and asset-backed securities across all sorts of maturities. Additionally, TAGG still retains many of the benefits of passive strategies such as low costs and diversification. 

Finsum: The current environment is unusually uncertain and volatile for fixed income investors. Here is why active strategies are a better fit for the current environment.