Back to top

Image: Bigstock

Prepare for Bond Bear Market With These ETFs

Read MoreHide Full Article

The dream run of the prolonged bullish bond market finally seems to be approaching its end. At least, U.S. treasury yields’ recent northbound journey gives such cues. Fed chief Yellen, ECB and the Bank of Japan (BoJ) sent hawkish signals for their respective monetary policies.

The yield on the 10-year Treasury notes was 2.62% on Jan 18, 2018, up 16 basis points from the start of the year. It was the highest benchmark for U.S. treasury yields since March 2017. The yield on the benchmark two-year Treasury note hit 2.05%, close to its highest level since Sep 2008.

With 10-year Treasury yields taking strides toward the 3%-mark, which means a “definitive” bear market for Treasuries, as DoubleLine Capital Chief Executive Officer Jeffrey Gundlach once said, things are looking dour in the bond market.

Investors should note that news of the Bank of Japan reducing its monthly bond purchases has reinforced the fact that several developed global central banks are eyeing policy tightening this year. The Fed is also on a policy tightening mode.  

The Fed's Beige Book also indicated that the U.S. economy’s inflation has been growing at modest-to-moderate clip. Several regional Fed districts recorded increases in manufacturing, construction, and transportation input costs, according to the Fed report.

The majority of Fed policymakers seemed to feel the necessity of raising rates given the economy is at or near full employment. They do not see any reason to wait for inflation to pick up further pace. RBC Wealth Management believes that “the solid numbers are pushing investors away from debt and back into equities (read: 5 High Dividend ETFs Off to a Great Start in 2018).”

The story is the same for the ECB as well. There is hearsay that this central bank is also mulling over a slow exit from its quantitative easing program. This indicates the central bank’s intension to leave the ultra-easy monetary policy era in 2018.

Against this backdrop, bond yields are rising, which means that the bull market for bond ETFs is coming to an end. Investors can play five equity ETFs to fight rising rate worries.

Fidelity Dividend ETF for Rising Rates (FDRR - Free Report)

The underlying index of the fund reflects the performance of stocks of large and mid-capitalization dividend-paying companies that are expected to continue to pay and grow their dividends and have a positive correlation of returns to increasing 10-year U.S. Treasury yields. The dividend yield of the fund is 2.77%.

PowerShares S&P 500 Ex-Rate Sensitive Low Volatility Portfolio XRLV

The Sunderlying index of the fund is composed of the 100 constituents of S&P 500 index that exhibit both low volatility and low interest rate risk (read: Should You Play These ETF Strategies as Fed Meets?).

Global X SuperDividend U.S. ETF DIV

The underlying index of the fund -- the INDXX SuperDividend US Low Volatility Index -- tracks the performance of 50 equally weighted common stocks, MLPs & REITs that rank among the highest dividend yielding equity securities in the United States. The fund yields about 6% annually. So, hefty dividend yields will make up for the capital loss, if there is any.

iShares Core Dividend Growth ETF DGRO

The underlying index of the fund -- the Morningstar US Dividend Growth Index -- is composed of U.S. equities with a history of consistently growing dividends. This points to a high-quality exposure (read: Best Dividend Growth ETFs for Rising Rates).

Technology Select Sector SPDR Fund XLK

The technology sector has been on a tear lately. The cyclical sector enjoys the tailwind of a growing economy. Emerging new technologies like cloud computing, big data and Internet of Things are expected to pull the sector forward in the coming days. So, investors can definitely play the Zacks Rank #2 (Buy) XLK (read: What Rising Rates? Play These Cyclical ETFs).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

Fidelity Dividend ETF for Rising Rates (FDRR) - free report >>