Back to top

Image: Bigstock

Best Performing Fixed-Income ETFs of May

Read MoreHide Full Article

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 - Free Report) ) — Up 16.3%

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

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

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

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

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 >>