Vanguard’s Madziyire on Treasuries & Active Bond ETFs

The outlook for the economy is uncertain, political risk is mounting, and inflation expectations are once again drifting higher. For John Madziyire, Portfolio Manager and Head of U.S. Treasuries and TIPS at Vanguard, that combination means one thing above all else. 

Volatility.

“One thing that is guaranteed right now is volatility,” Madziyire said in an interview with ETF.com. “At a high level, we think Treasury yields are very attractive given where we are in the cycle. And there is a lot of room for [Treasury bonds] to rally if conditions do worsen.”

He noted that valuations across risk assets look stretched, making Treasuries a timely hedge and diversifier. 

“Macro and political risk are going to create a lot of volatility and the outlook is very uncertain,” he said. “But with volatility comes opportunity. That’s why you want to be invested in an actively managed fund like the Vanguard Government Securities Active ETF (VGVT), which is able to take advantage of all this volatility.”

TIPS as Insurance

Madziyire also addressed the state of the inflation-linked bond market. TIPS, he said, should be thought of as an insurance policy.

“When you’re buying [TIPS], you’re basically saying in the event of inflation being a problem, then you are going to have a hedge,” he explained. 

Madziyire noted that breakeven inflation rates, or TIPS investors’ expectations about future inflation, have increased recently.

“They have widened out to reflect the tariffs which are coming through,” he said, adding that it’s possible that inflation ends up even higher than the market is currently pricing in.

“With the [potential] firing [of Fed Governor Lisa Cook] or an unnecessarily dovish Fed, that could potentially mean higher than expected inflation, even more than what is priced in now.”

“But in the last few days, we've actually seen the market...pricing in that risk. [That’s why] I wouldn't necessarily encourage people to rush into TIPS. I would say being opportunistic is more what I'd advise, given where we are.”

Inside VGVT

Launched earlier this year, the Vanguard Government Securities Active ETF (VGVT) is designed to navigate this kind of uncertain environment. The fund has a duration of 5.8 years, an expense ratio of 0.10%, and the flexibility to invest across the full yield curve.

The fund can also put up to 20% of its assets into other high-quality, investment-grade bonds beyond Treasuries and government-backed securities.

“It can dynamically allocate between different sectors,” Madziyire said. That includes “agency MBS, CMBS, high quality ABS and non-agency MBS, as well as TIPS. All of these enhance the yield of the fund. So you would expect to get a better yield from the fund.”

He contrasted VGVT with the passive Vanguard Intermediate-Term Treasury ETF (VGIT), which tracks the 3–10 year portion of the curve. 

“VGIT is ideal for investors who want straightforward, passive exposure to intermediate Treasuries,” he said. “VGVT is suited for people seeking a more dynamic, actively managed approach that can take advantage of changing market conditions and potentially enhance returns.” 

Active vs Index

For investors deciding between index and active strategies, Madziyire said the answer depends on goals, preferences, and outlook. But he emphasized that Vanguard is leaning into active fixed income in a big way.

“Some people find it hard to believe, but Vanguard has actually been doing active fixed income for the last 40 years,” he said. “When you look at the performance of the active fixed income funds, 92% have outperformed their peers in the last decade. And the average expense ratio for a Vanguard active fixed income fund is 10 basis points, versus the industry average of 30.”

That low-cost discipline, he added, allows the firm to focus on “smart risk taking, not taking big bets.”