Bond Market Sell-Off: 3 of the Best ETFs to Buy Right Now

With the 10-year U.S. Treasury yield above 5% and the Fed signaling further short-term rate hikes, the article highlights VFH, VDE and EQRR as ETFs that may benefit from higher rates. In 2022, when the S&P 500 fell about 18%, VDE returned nearly 63%, EQRR returned 2.3%, and VFH also outperformed the index despite posting a negative return. The article notes that past performance does not guarantee future outperformance.

Analysis

The key distinction is that “higher rates” is not one trade: banks respond to the yield curve, deposit pricing and credit quality; energy responds mainly to commodity prices and supply. A further rise in long yields with an inverted curve or faster deposit repricing could compress bank economics even as loan rates rise. VFH is therefore not a clean duration hedge. Its financials exposure also brings credit-cycle risk if tighter conditions weaken borrowers.

VDE’s apparent rate resilience is more plausibly an oil-and-gas supply/demand exposure than protection from rates. If supply disruptions unwind or demand expectations weaken, falling crude can overwhelm any “essential product” argument. Refiners such as MPC and VLO may also respond differently from upstream producers: margins depend on crack spreads, not simply the oil price.

EQRR’s historical outperformance is especially vulnerable to regime and composition effects. Its tech allocation, including CRWD and ZS, can face valuation pressure as discount rates rise, while energy exposure may already reflect commodity strength. The 2022 comparison is not a clean test of a rate factor because energy-specific shocks materially influenced returns.

Near term, avoid chasing the ETFs after strong trailing performance. Over 1–3 months, the actionable signal is the curve and bank funding/credit indicators, alongside crude and refinery spreads. Over 6–18 months, persistent high real yields would challenge long-duration growth valuations, but would not guarantee financial-sector outperformance. The thesis weakens if yields fall, the curve steepens for benign growth reasons, bank credit deteriorates, or oil supply risk recedes.

Key Decisions for Investors

• No broad long in VFH solely on a higher-for-longer view. Reassess only if loan yields are outpacing deposit costs and credit metrics remain stable; falsify on worsening delinquencies/provisions or renewed deposit-cost pressure.
• Treat VDE as a commodity position, not a rate hedge. Avoid chasing the rally; consider adding only after a pullback if supply tightness persists and crude/refinery-spread indicators confirm the earnings backdrop. Revisit if supply disruptions ease or demand weakens.
• Avoid using EQRR as a pure rates expression: its mixed sector exposures can dilute the signal. Track its relative performance against a broad-market benchmark and watch whether rising real yields coincide with weakness in its growth holdings.
• For a conditional relative-value expression, favor VDE over VFH only while oil supply remains tight and bank funding/credit trends deteriorate; close or reassess if crude reverses or bank fundamentals improve alongside a steeper curve.