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Despite low rates in various corners of the world and a still-dovish Federal Reserve, investors continue to pile into fixed income ETFs. In fact, over the trailing one-year period, fixed income ETFs delivered an all-star performance. Though chances of the bull run in the bond market hobbling in 2016 were higher, in reality, the asset class has been on tear this year.
Global growth worries, continued mayhem in oil prices – especially in the first quarter of the year, loss of momentum even in the otherwise- improving U.S. economy and corporate earnings recession compelled investors to look for safety, shun risky assets and routinely park their money in the relatively safer fixed-income securities.
Yes, a surge in risky assets was also noticed to start Q2, especially on oil price stabilization and a pacing U.S. economy, weaker job growth in the month of April and May once again blurred the U.S. growth picture. Plus, Brexit or Britain’s decision to cut ties with the European Union (EU) through a referendum arranged on June 23 dealt a blow to risky investing.
In fact, the impact of the global financial market turmoil and Brexit contagion was so deep-rooted that Fed chair Yellen reaffirmed a cautious stance on future policy tightening. Though the Fed maintained its plans for two rate hikes this year, the present scenario will probably allow hardly one. The Fed also lowered the number of potential hikes in each of 2017 and 2018 from four to three (read: Dovish Fed Trims U.S. Outlook: ETFs to Buy).
Global Bond Yields on Freefall
Needless to mention, the all these hiccups dragged down the U.S. benchmark bond yields and pushed up their prices. This is because bond prices and yields are negatively correlated.
Notably, yields on 10-year Treasury notes dropped 78 bps to 1.46% (as of June 28, 2016) in the quarter, leading the U.S. Treasury valuation to soar. Notably, the benchmark 10-Year U.S. Treasury yield is now at four-year lows (read: Treasury ETFs in Focus on Flight to Safety).
And what could be said about German bond yield? Deflationary fears from the start of 2016 and now Brexit has kept European equity investing on the edge, opening doors for safe-haven German bonds and sending German yields into the negative territory. Brexit shocks pushed the 10-year German bond yield to negative 0.11%.
In fact, in mid-June, the Bloomberg Global Developed Sovereign Bond Index has been on an upward trajectory in a four-week timeframe (as of June 16, 2016), the best ever stretch since October 2013.
ETF Winners in 1H
In such a situation, it would be interesting to note the ETFs that were the leaders in the bond space during the first half of 2016.
DB German Bund Futures ETN ) – Up 48.7%
German bonds and the related ETFs made the most of this dubious scenario as these offer safety.
The note looks to provide investors exposure to the U.S. dollar value of the returns of a German bond futures index, replicating the performance of a long position in Euro-Bund Futures. The note is up 48.7% so far this year (as of June 28, 2016).
25+ Year Zero Coupon U.S. Treasury Index Fund (ZROZ - Free Report) ) – Up 24.7%
Investors flocked to long-term U.S. Treasury yields for higher current income and safety.
ZROZ focuses on Treasury principal STRIPS that have 25 years or more remaining to final maturity. ZROZ has added over 24% so far this year (as of June 28, 2016) and it yields about 2.41% annually (read: 5 ETFs for Portfolio Safety, Stability and Diversification).
This fund seeks to match the performance of the Barclays U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index. The product yields arround 2.48% (as on June 28, 2016) (read: Extended Duration ETFs Head to Head: EDV vs ZROZ).
Among the other U.S. long-term U.S. treasury ETF winners, there were iShares 20+ Year Treasury Bond ETF (TLT - Free Report) , SPDR Barclays Long Term Treasury ETF and Vanguard Long-Term Government Bond ETF (VGLT - Free Report) . TLT, TLO and VGLT were up 15.7%, 14.8% and 14.7% in the first half of 2016 (as of June 28, 2016), respectively.
Vanguard Long-Term Bond ETF (BLV - Free Report) – Up 13.5%
This long-term fund gives an aggregate exposure to all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar denominated bonds with maturities of greater than 10 years that are publicly issued. The fund yields about 3.99% annually as of June 28, 2016.
SPDR Nuveen Barclays Capital Build America Bond ETF – Up 12.6%
This muni bond ETF consists of all direct pay Build America Bonds that satisfy the rules of the Barclays Taxable Municipal Index. The fund ‘s holdings are of high quality with a focus on long-term bonds. The fund yields 3.33% annually (as of June 28, 2016).
VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL - Free Report) – Up 12.4%
The drive for high income also pushed investors to high yield bonds which made ANGL a winner. The fund yields about 5.24% annually (as of June 28, 2016) (read: Junk Bond ETF (ANGL - Free Report) Soaring: Will its Flight Last?)
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Top Performing Bond ETFs of 1H
Despite low rates in various corners of the world and a still-dovish Federal Reserve, investors continue to pile into fixed income ETFs. In fact, over the trailing one-year period, fixed income ETFs delivered an all-star performance. Though chances of the bull run in the bond market hobbling in 2016 were higher, in reality, the asset class has been on tear this year.
Global growth worries, continued mayhem in oil prices – especially in the first quarter of the year, loss of momentum even in the otherwise- improving U.S. economy and corporate earnings recession compelled investors to look for safety, shun risky assets and routinely park their money in the relatively safer fixed-income securities.
Yes, a surge in risky assets was also noticed to start Q2, especially on oil price stabilization and a pacing U.S. economy, weaker job growth in the month of April and May once again blurred the U.S. growth picture. Plus, Brexit or Britain’s decision to cut ties with the European Union (EU) through a referendum arranged on June 23 dealt a blow to risky investing.
In fact, the impact of the global financial market turmoil and Brexit contagion was so deep-rooted that Fed chair Yellen reaffirmed a cautious stance on future policy tightening. Though the Fed maintained its plans for two rate hikes this year, the present scenario will probably allow hardly one. The Fed also lowered the number of potential hikes in each of 2017 and 2018 from four to three (read: Dovish Fed Trims U.S. Outlook: ETFs to Buy).
Global Bond Yields on Freefall
Needless to mention, the all these hiccups dragged down the U.S. benchmark bond yields and pushed up their prices. This is because bond prices and yields are negatively correlated.
Notably, yields on 10-year Treasury notes dropped 78 bps to 1.46% (as of June 28, 2016) in the quarter, leading the U.S. Treasury valuation to soar. Notably, the benchmark 10-Year U.S. Treasury yield is now at four-year lows (read: Treasury ETFs in Focus on Flight to Safety).
And what could be said about German bond yield? Deflationary fears from the start of 2016 and now Brexit has kept European equity investing on the edge, opening doors for safe-haven German bonds and sending German yields into the negative territory. Brexit shocks pushed the 10-year German bond yield to negative 0.11%.
In fact, in mid-June, the Bloomberg Global Developed Sovereign Bond Index has been on an upward trajectory in a four-week timeframe (as of June 16, 2016), the best ever stretch since October 2013.
ETF Winners in 1H
In such a situation, it would be interesting to note the ETFs that were the leaders in the bond space during the first half of 2016.
DB German Bund Futures ETN ) – Up 48.7%
German bonds and the related ETFs made the most of this dubious scenario as these offer safety.
The note looks to provide investors exposure to the U.S. dollar value of the returns of a German bond futures index, replicating the performance of a long position in Euro-Bund Futures. The note is up 48.7% so far this year (as of June 28, 2016).
25+ Year Zero Coupon U.S. Treasury Index Fund (ZROZ - Free Report) ) – Up 24.7%
Investors flocked to long-term U.S. Treasury yields for higher current income and safety.
ZROZ focuses on Treasury principal STRIPS that have 25 years or more remaining to final maturity. ZROZ has added over 24% so far this year (as of June 28, 2016) and it yields about 2.41% annually (read: 5 ETFs for Portfolio Safety, Stability and Diversification).
Vanguard Extended Duration Treasury ETF (EDV - Free Report) – Up 22.7%
This fund seeks to match the performance of the Barclays U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index. The product yields arround 2.48% (as on June 28, 2016) (read: Extended Duration ETFs Head to Head: EDV vs ZROZ).
Among the other U.S. long-term U.S. treasury ETF winners, there were iShares 20+ Year Treasury Bond ETF (TLT - Free Report) , SPDR Barclays Long Term Treasury ETF and Vanguard Long-Term Government Bond ETF (VGLT - Free Report) . TLT, TLO and VGLT were up 15.7%, 14.8% and 14.7% in the first half of 2016 (as of June 28, 2016), respectively.
Vanguard Long-Term Bond ETF (BLV - Free Report) – Up 13.5%
This long-term fund gives an aggregate exposure to all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar denominated bonds with maturities of greater than 10 years that are publicly issued. The fund yields about 3.99% annually as of June 28, 2016.
SPDR Nuveen Barclays Capital Build America Bond ETF – Up 12.6%
This muni bond ETF consists of all direct pay Build America Bonds that satisfy the rules of the Barclays Taxable Municipal Index. The fund ‘s holdings are of high quality with a focus on long-term bonds. The fund yields 3.33% annually (as of June 28, 2016).
VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL - Free Report) – Up 12.4%
The drive for high income also pushed investors to high yield bonds which made ANGL a winner. The fund yields about 5.24% annually (as of June 28, 2016) (read: Junk Bond ETF (ANGL - Free Report) Soaring: Will its Flight Last?)
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>