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Best Performing Fixed-Income ETFs of May

Sanghamitra Saha
We have highlighted some investing ideas that could prove to be extremely beneficial for investors for the rest of the year in the current market environment.

May was a month of staggering success for fixed-income securities. Trade tensions were rife as the Trump administration intensified its battle against China and Mexico last month. Trump lifted tariffs on $200 billion worth of Chinese goods from 10% to 25% on May 10 while China announced a retaliatory move — a tariff hike on $60 billion worth of American goods to 25% starting Jun 1. Trump is considering additional tariffs on an incremental $325 billion of Chinese imports (read: 4 High-Dividend ETF Winners Amid May's Trade Tantrum).

At the end of the month,Trump announced tariffs on all goods imported from Mexico in order to put a check on illegal immigration. Trump said that the first round of tariffs will begin on Jun 10 at 5%. Trump’s administration warned that if Mexico does not bar “illegal migrants” into the United States, tariffs would go up to 10% by July, 15% by August, 20% by September and scale to a permanent level of 25% by October (read: After China, US Hits Mexico With Tariffs: ETFs Under Threat). 

Needless to say, there was a bloodbath in the market, which in turn triggered a safe-haven rally in the month. The 10-year benchmark U.S. treasury yield ended the month on 2.14% while the same hit a monthly high of 2.55% on May 2.  

“The markets are pricing in a significant probability of a Fed cutting cycle,” per Eric Stein, co-director of global income and a portfolio manager at Eaton Vance. For the upcoming Fed meeting on Jun 19, there are 72.5% chances of the Fed staying put while 27.5% probability is assigned to a 25-bp cut, per CME FedWatch Tool.

Though chances of a rate cut is qualitatively negligible given the upbeat job market and solid Q1 GDP data, the bond market started giving out signals of a recession. Parts of the yield curve are inverted now. The 10-year U.S. treasury yield has been trading below that of the one-month, two-month, three-month, six-month and one-year for the last few days (as of May 31, 2019) (read: Recession Fear Lurking: ETFs & Stocks to Play).

Since bond yields and prices are inversely-related, such slumps in yields bode well for bond prices. Against this backdrop, we highlight a few fixed-income ETFs that beat the broader market in May and also led the bond ETF world (read: Intensifying Trade Woes Trigger Rally in Treasury ETFs).

Outperforming ETFs

iPath US Treasury 5-year Bull ETN (DFVL) — Up 16.3%

iPath US Treasury 2-year Bull ETN (DTUL) — Up 15.3%

PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund (ZROZ) — Up 10.5%

Vanguard Extended Duration Treasury Index Fund ETF Shares (EDV) — Up 9.3%

iShares 20+ Year Treasury Bond ETF (TLT) — Up 6.6%

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iShares 20+ Year Treasury Bond ETF (TLT): ETF Research Reports
 
PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (ZROZ): ETF Research Reports
 
Vanguard Extended Duration Treasury ETF (EDV): ETF Research Reports
 
iPath US Treasury 5-year Bull ETN (DFVL): ETF Research Reports
 
iPath US Treasury 2-year Bull ETN (DTUL): ETF Research Reports
 
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