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:

  1. 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.
  2. 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.
  3. Long term Treasury (TLT) continued its recent decline and loss almost 2% last week on better-than-expected unemployment figures.
  4. Similarly, U.S. inflation protected Treasury bonds (TIP) and medium term Treasury (TLH) were not holding up as well.
  5. 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

JNK

4.08%

4.6%

v

Investment Grade Corporate bond Fund

LQD

1.61%

1.38%

^

International Inflation Protected

WIP

1.48%

4.74%

v

Emerging Mkt Bonds

PCY

1.44%

1.6%

v

Inflation Protected

TIP

1.02%

1.16%

v

Intermediate Term Credit

CIU

0.99%

0.93%

^

Short Term Credit

CSJ

0.59%

0.52%

^

Intermediate Treasury

IEF

0.43%

0.19%

^

Short Term Treasury

SHY

0.34%

0.38%

v

Treasury Bills

SHV

0.03%

0.05%

v

US Total Bond

BND

-0.07%

-0.07%

v

10-20Year Treasury

TLH

-0.64%

-0.36%

v

MBS Bond

MBB

-0.89%

-0.66%

v

International Treasuries

BWX

-0.96%

2.93%

v

National Muni

MUB

-2.38%

-2.8%

^

New York Muni

NYF

-2.49%

-3.66%

^

20+ Year Treasury

TLT

-2.59%

-1.34%

v

California Muni

CMF

-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,

 



comments 0   Share/Bookmark
Register for FREE No Credit Card Required
Or Start FREE 30-day trial now >>

Members enjoy Free features

  • Customize and follow a diversified strategic allocation portfolio for your 401k, IRA and brokerage investments within minutes
  • Receive monthly or quarterly re-balance emails
  • Enter funds and percentages in your portfolio, see its historical performance and receive ongoing rebalance emails
  • Real time fund ranking and selection for your plans
  • Quality retirement investing newsletter emails
  • Fund ranking and selection for your plans

Tens of thousands of users have signed up!

Join Now (Free)
No Credit Card Required

User names can only consist of alphabetic and
numeric characters.(eg: 0-9a-zA-Z)
I agree to the Terms of use

Login With Facebook:

Get Started Now. It's Free!

Get portfolio suggestions for your
401k plan or brokerage accounts

Powered by MyPlanIQ
You have created an account on MyPlanIQ.com by using this email "", please login MyPlanIQ account or reset your password.