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Low Inflation, Rising Treasury Yields Hammer TIPS

Fri, 24 May 2013 10:23:11 +0000

All areas of the bond market have lost ground so far in May, but Treasury Inflation Protected Securities (TIPS) are second only to Treasuries in terms of their weakness. Month-to-date through Thursday, the iShares Barclays TIPS Bond Fund (TIP) has shed 3.07%, compared to a loss of about 1.3% for the broader market. The TIP ETF has lost ground in 15 of the past 19 trading sessions. Investors have taken note: the fund has experienced $547 million in redemptions so far in May, bringing its year-to-date outflow to $2.47 billion - second worst among all U.S. ETFs.

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Reaction to Bernanke Comments Provides a Preview of What's in Store for Bonds

Wed, 22 May 2013 14:01:36 +0000

For much of this year, one of the largest sources of speculation has involved the timing surrounding the end of the U.S. Federal Reserve's bond-buying program known as quantitative easing (QE). The program, which has been widely credit with fueling the strong performance of both stocks and bonds in recent years, needs to be wound down at some point - the primary question is when. While Fed officials generally have remained steadfast in their assertions that QE would continue until economic growth picks up, Chairman Ben Bernanke threw the markets a curveball on Wednesday in his testimony before Congress. When asked if he may change policy before Labor Day, Bernanke answered that the current pace of bond purchases could slow "in the next few meetings."

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Believe it or Not, U.S. Treasuries are Offering Competitive After-Inflation Returns

Tue, 21 May 2013 11:00:25 +0000

U.S. Treasuries are the investment nobody wants to own. Their yields are low, they may or may not be in a "bubble" depending on which pundit you listen to, and many experts believe the market will collapse once the U.S. Federal Reserve finally abandons its policy of quantitative easing.

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High Yield Municipals Are Out-Yielding High Yield Corporates

Tue, 21 May 2013 06:46:09 +0000

Investors are on a never-ending search for yield these days, but those looking to pick up income in high yield corporates may be looking in the wrong place. On Monday, CBS MarketWatch reported that high yield municipal bonds are paying higher yields than their corporate counterparts - before the tax benefits are taken into account. The reason for this disconnect is that high yield bonds have performed so well in the past year, driving their yields down to record-low levels.

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ETF Flows Show Investors are Avoiding Risk

Mon, 20 May 2013 11:00:10 +0000

A good way to get a sense of what investors are thinking about in a given time period is to look at the data regarding ETF inflows and outflows that is available at IndexUniverse.com. The website shows that in the year-to-date period, the third- and fourth- largest gainers among all U.S. ETFs were Vanguard Short-Term Bond Fund (BSV) and PowerShares Senior Loan (BKLN). The two funds have hauled in $2.8 and $2.7 billion, respectively, since the start of the year. The popularity of these funds indicates that even though the bond market has held up well this year, investors remain concerned about interest rate risk. Short-term bonds have less interest rate exposure than either their intermediate- or longer-term counterparts, while senior loans offer floating rates, which makes them less sensitive to broader rate movements.

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The Case Against Buying Individual Bonds

Mon, 20 May 2013 10:14:26 +0000

One of the most important decisions for bond investors is whether to buy bond funds or individual bonds. While individual bonds provide the comfort that a certain amount of cash will be returned at a specific time, bond funds offer greater diversification and spare investors the need for individual security research.

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Reuters: There's a Shortage of Bonds

Thu, 16 May 2013 09:28:45 +0000

At first, it seems unthinkable. With global government debt rising and corporations rushing to issue debt at low rates, could there really be a shortage of bonds? According to a story published by Reuters on May 15, that's exactly the case.

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The Highest Yielding Bond ETFs

Wed, 15 May 2013 16:44:55 +0000

It's getting harder to find investments with decent yields these days, but it isn't impossible. Below is the list of the 15 highest yielding bond ETFs, ranked in order of their SEC yields as of May 14, 2013, and excluding target maturity ETFs. The yields shown here may differ from others that appear on ETF-screening websites, since most sites use trailing 12-month yield - a different measure. Not surprisingly, the majority of the funds invest in high yield or emerging market corporate bonds. Keep in mind, of course, that there's more to selecting an investment than its yield, as outlined in my article The Top 10 Most Common Mistakes by Bond Investors. The 15 highest-yielding bond ETFs are:

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What Will Happen to Bonds When the Fed Raises Rates?

Tue, 14 May 2013 10:59:16 +0000

Nobody knows exactly when the Federal Reserve will raise interest rates, but one thing is certain: once investors sense that rate increases are in the offing, the 31-year bull market in bonds will come to a close.

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Comments from Bernanke and Bill Gross Pressure the Bond Market

Fri, 10 May 2013 15:58:20 +0000

Last Friday's better-than-expected jobs report continues to reverberate through the U.S. Treasury market. After closing with a yield of 1.63% on May 2- the lowest level since mid-December - the yield on the10-year Treasury note surged to 1.75% on the day of the report last Friday. (Keep in mind, prices and yields move in opposite directions.) The downturn continued this week, with the 10-year closing Friday at 1.90% - its highest close since March 26. The weakness in Treasuries has been felt across the market, as mortgage-backed securities, municipal bonds, and investment grade corporate bonds have all slipped so far in May.

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