The yield on the benchmark U.S. treasury bonds slipped to as low as 1.52% on Aug 15 thanks to a global bond rally. Notably, central banks worldwide have been cutting rates aggressively amid global growth concerns on account of unceasing trade tensions and China’s yuan devaluation.
This has led to a sharp cut in yields in global bonds. Japan’s 10-year bond yield slipped to its lowest since July 2016. New Zealand’s benchmark rate also
dropped to a new record low as renewed U.S.-China trade woes bolstered haven assets. There are speculations that New Zealand’s central bank may slash interest rates further. Some expect “the RBNZ to cut the OCR another 25 basis points to 0.75% in November and retain an easing bias.”
There has been a flurry of rate cuts of late with central banks in New Zealand, India, Thailand, South Korea, Indonesia, South Africa, Philippines and Peru resorting to rate cuts in order to keep signs of a slowdown at bay. Low exports amid trade tensions were limiting Asian exporters while countries like India and New Zealand sought to speed up growth (read:
After Yuan Devaluation, Likely Chinese Retaliation & ETF Ways).
The world’s negative-yielding bonds have jumped to
a record $16.7 trillion, while a key part of the U.S. Treasury curve inverted this week, signaling chances of a recession in the United States. Markets have started pricing in further easing by major central banks and investors are thus rushing into debt.
Against this backdrop, investors should get prepared for a bond ETF rally. Below we highlight a few bond ETFs that are hovering around a 52-week high.
25+ Year Zero Coupon U.S. Treasury Index ETF Pimco ( ZROZ Quick Quote ZROZ - Free Report)
The underlying BofA Merrill Lynch Long Treasury Principal STRIPS Index comprises of long maturity Separate Trading of Registered Interest & Principal of Securities representing the final principal payment of U.S. Treasury bonds. The fund charges 15 bps in fees (read:
Safe-Haven ETFs Rally on Global Unrest: ETFs to Snap Up). Extended Duration Treasury Index ETF Vanguard ( EDV Quick Quote EDV - Free Report)
The underlying Bloomberg Barclays US Treasury STRIPS 20-30 Year Equal Par Bond Index includes zero-coupon U.S. Treasury securities, which are backed by the full faith and credit of the U.S. government, with maturities ranging from 20 to 30 years. The fund charges 7 bps in fees (read:
ETF Predictions for a Historically Low August). 15+ Year US TIPS Index ETF Pimco ( LTPZ Quick Quote LTPZ - Free Report)
The underlying ICE BofAML 15+ Year US Inflation-Linked Treasury Index comprises of U.S. Treasury Inflation Protected Securities with at least $1 billion in outstanding face value. The fund charges 20 bps in fees.
Long-Term Govt Bond Vanguard ( VGLT Quick Quote VGLT - Free Report)
The underlying Bloomberg Barclays US Long Treasury Bond Index includes fixed income securities issued by the U.S. Treasury with maturities greater than 10 years. The fund charges 7 bps in fees.
20+ Year Treasury Bond iShares ETF ( TLT Quick Quote TLT - Free Report)
The underlying ICE U.S. Treasury 20+ Year Bond Index assesses U.S. Treasury issued debt. Only U.S. dollar denominated, fixed rate securities with minimum term to maturity greater than 20 years are included. The fund charges 15 bps in fees.
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