Junk Bonds: Sector to Shine on Rising Interest Rates
01/12/2011 0 comments
Treasuries were in a slump last week on improved economic fundamentals. As the economic recovery continues to solidify one must allow for the possibility that interest rates will rise further when adjusting their fixed-income portfolios. By examining the following trend score table for bond ETFs that represent various fixed income subclasses, one can gain some insights into the current fixed income market:
- High yield bonds (JNK) regained the top spot. Junk bonds tend to move closely in-line with the equity market and perform well even in a rising interest rate environment. This is a sector where investors should pay more attention to in an improving economy. The value of junk bonds could hold up much better if rates rise further and the improving fundamentals attract more inflow into this sector.
- The high demand in the last two months for inflation-protected securities (WIP) has helped send yields sharply lower and bid up the prices. Last week, however, (WIP) had big drop on thin trading volume.
- Long term Treasury (TLT) continued its recent decline and loss almost 2% last week on better-than-expected unemployment figures.
- Similarly, U.S. inflation protected Treasury bonds (TIP) and medium term Treasury (TLH) were not holding up as well.
- The muni bond market had a sharp pull back last week. California muni (CMF) gained 1% and New York muni (NYF) rose more than 0.5% last week. That said, it is important to note the muni bond funds were the worst performing sector last quarter and yields are likely to go higher if any defaults were to occur.
For more detailed total return performance, please see here.
Assets Class |
Symbols |
01/07 Trend Score |
12/31 Trend Score |
Direction |
High Yield |
4.08% |
4.6% |
v |
|
Investment Grade Corporate bond Fund |
1.61% |
1.38% |
^ |
|
International Inflation Protected |
1.48% |
4.74% |
v |
|
Emerging Mkt Bonds |
1.44% |
1.6% |
v |
|
Inflation Protected |
1.02% |
1.16% |
v |
|
Intermediate Term Credit |
0.99% |
0.93% |
^ |
|
Short Term Credit |
0.59% |
0.52% |
^ |
|
Intermediate Treasury |
0.43% |
0.19% |
^ |
|
Short Term Treasury |
0.34% |
0.38% |
v |
|
Treasury Bills |
0.03% |
0.05% |
v |
|
US Total Bond |
-0.07% |
-0.07% |
v |
|
10-20Year Treasury |
-0.64% |
-0.36% |
v |
|
MBS Bond |
-0.89% |
-0.66% |
v |
|
International Treasuries |
-0.96% |
2.93% |
v |
|
National Muni |
-2.38% |
-2.8% |
^ |
|
New York Muni |
-2.49% |
-3.66% |
^ |
|
20+ Year Treasury |
-2.59% |
-1.34% |
v |
|
California Muni |
-3.76% |
-5.57% |
^ |
click to enlarge images
labels:investment,
Symbols:AGG,BND,BWX,CIU,CMF,CSJ,EMB,HYG,IEF,JNK,LQD,MBB,MUB,NYF,PCY,PHB,SHV,SHY,TIP,TLH,TLT,WIP,
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