Bond ETFs Could Be Stabilizing as Interest Rates Hold

ETF Trends

Yields on benchmark Treasuries have spiked 100 basis points, wreaking havoc on fixed-income exchange traded fund portfolios. However, some argue that the pain may be over, at least for now.

The CBOE 10-year Treasury Note Yield recently hit a new year-to-date high of 2.9% while many observers are eying the nice and even 3.0% marker, writes David Fabian, managing partner at Fabian Capital Management, for Minyanville. Yields and bond prices have an inverse relationship, so rising rates translates to falling prices.

Interest rates, though, have declined somewhat over the past week as investors sought the safety of Treasuries in light of recent developments in the Syrian crisis.

Two prominent bond experts, Bill Gross and Jeffrey Gundlach, argue that the move in interest rates is likely over and that economic stability could be toppled if bond yields rise any further. [Treasury ETFs: The Ultimate Contrarian Trade]

Fabian also points to several factors in favor of stability in interest rates.

  • Markets anticipated tapering . The bond market may have already priced in a September tapering. Meanwhile, wary investors have already exited.
  • Syria . Bellicose rhetoric over Syria’s alleged use of chemical agents in its ongoing civil war has pushed investors into safe haven bonds. [Global Bond ETF Shines Even as U.S. Yields Soar]
  • Widening spreads . The spread between two-year and 10-year Treasury yields has grown to 2.55 percentage points, approaching the historical high of 2.93 percentage points.

Consequently, Fabian suggests investors shouldn’t exit bonds entirely as interest rates fall and bond prices continue to rise.

For more information on bonds, visit our bond ETFs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

View Comments (1)