Bonds and Bond ETFs Sell Off: Weekly Bond ETF Report
Bonds and Bond ETFs post weekly sell off on settlement of fiscal cliff and rising interest rates.
Bonds and bond ETFs fell sharply last week as the “flight to quality” trade was dampened by the partial resolution of the fiscal cliff. Read “Moment Of Truth For U.S. Stocks and ETFs”
Bonds rose on Friday after the weaker than expected jobs report, with the ten year U.S. Treasury (NYSEARCA:IEF) climbing 0.04% and the 20_ U.S. Treasury ETF (NYSEARCA:TLT) gaining 0.39%.
For the week, however, interest rates rose sharply while bond prices and bond ETF prices fell across the board.
In spite of the headwinds generated by recession in Japan and Europe and the potential upheaval of the upcoming debt ceiling debate in the United States, bond investors seem to be betting on higher interest rates and lower bond prices over the near term.
This development could be bad news for heavily indebted governments like the United States, Spain and Italy which would have to pay more to finance their debt on global markets.Bond prices were also impacted by fears that the Federal Reserve is going to cut back on their highly accomodative monetary policies in the near future after publication of the minutes of the recent FOMC meeting.
Bond ETF Update:
iShares Barclays Treasury Inflation Protected Securities Bond ETF (NYSEARCA:TIP): -0.04%, This ETF seeks to track the performance of the Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index. The Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index reflects the performance of the inflation-protected sector of the United States Treasury Market.
iShares Barclays 20+ Year Treasury Bond ETF (NYSEARCA:TLT): +0.39%, This ETF seeks to track the performance of the 20+ Year United States Treasury Bond Market as reflected by the Barclays Capital 20+ Year Treasury Bond Index. The Barclays Capital 20+ Year Treasury Bond Index tracks the performance of US Treasury Bonds with over 20+ years of remaining maturity.
ProShares UltraShort 20+ Year Treasury Bond ETF (NYSEARCA:TBT): -0.67%, This ETF tracks the 2X inverse daily return of the 20+ Year US Treasury Bonds performance as reflected in the Barclays Capital 20+ Year Treasury Bond Index. The Barclays Capital 20+ Year Treasury Bond Index tracks the performance of US Treasury Bonds with over 20+ years of remaining maturity, while the ProShares UltraShort 20+ Year Treasury ETF (NYSERACA:TBT) tracks the inverse, 2X performance of the index on a day to day basis.
iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA:LQD): -0.05%, This ETF tracks the overall corporate bond market as reflected by the iBoxx $ Investment Grade Corporate Bond Index. The iBoxx $ Investment Grade Corporate Bond Fund Index seeks to reflect the performance of US dollar denominated corporate bonds available for sale in the United States.
Bottom Line: While interest rates rose sharply and bond ETF prices declined with last week’s powerful equity rally, it seems premature to say that a bear market in bonds has begun and that interest rates will continue to rise. Significant fundamental headwinds for equities remain, including drag on GDP from the fiscal cliff settlement, upcoming debt ceiling debate, Q4 earnings and recessions in Europe and Japan.
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