Pulte Capital CEO Bill Pulte talks about housing supply on Cavuto: Coast to Coast.
It's been a tough few weeks for bond investors. With more uncertainty ahead, it may be time to consider some hedging options.
This was supposed to be the time when long-suffering bond investors were finally rewarded. After forcing bondholders to endure months of “long-term interest rate increases,” the Federal Reserve finally cut interest rates last month.
The yield on the 10-year U.S. Treasury rose to 4.31% on Tuesday from just over 3.6% in mid-September as short-term interest rates fell while investors sold long-term bonds. Bond investors are taking it with a grain of salt. iShares Core US Aggregate Bond Exchange Traded Fund, a popular broad-market bond fund, returned -2.7% over the past month.
| ticker | safety | last | change | change % |
|---|---|---|---|---|
| AGG | ISHARES Core US Aggregate Bond ETF – USD DIS | 98.35 | +0.21 |
+0.21% |
Private sector job openings surge in October
iShares Core U.S. Aggregate Bond ETF
Even more dramatic is the rout of the iShares 20-Year Treasuries ETF. The fund made headlines, rising nearly 8% in the weeks before the Fed cut interest rates in mid-September. Since then, all of those gains and more have been given back, with the stock down 9% from its September 16th high. (Bond prices move in the opposite direction to yields.)
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| ticker | safety | last | change | change % |
|---|---|---|---|---|
| TLT | ISHARES 20+ Years Government Bond ETF – USD DIS | 92.74 | +0.49 |
+0.53% |
iShares 20+ Years Government Bond ETF.
One reason for the recent spike in yields may be that investors' focus has shifted to the presidential election. That theory has been popular on Wall Street since the decade's decline coincided with a rise in former President Donald Trump's poll numbers and odds in prediction markets. Investors are concerned that President Trump's proposed tariffs could cause a resurgence of inflation, but his tax cuts are expected to increase the national debt by about twice as much as Vice President Kamala Harris' proposals. are.
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Former President Donald Trump and Vice President Kamala Harris have advocated similar positions on issues this election cycle. (Fox News/Getty Images/Fox News)
Either way, next week could be a big week for bonds. Ahead of Election Day on Nov. 5, investors will digest a slew of economic reports this week, including Thursday's personal consumption expenditure price index (economists expected a 2.1% year-over-year increase) and Friday's October jobs report. would need to. (Consensus calls for a 108,000-person increase in nonfarm employment.)
“Seats and tray tables should be placed in an upright position,” Ironsides Macroeconomics analyst Barry Knapp wrote in a note Saturday. “I cannot recall the 8-9 day period during which it was scheduled.” .
As a result, if bond market investors aren't willing to weather further volatility, it may be time to look for ways to hedge their bets. One possibility is an exchange-traded fund like the Global X Interest Rate Hedge ETF. This is especially when investors use long-term interest rate swap options to protect against sudden increases in long-term interest rates.
| ticker | safety | last | change | change % |
|---|---|---|---|---|
| rate | Global X Interest Rate Hedged ETF – USD DIS H | 19.62 | -0.19 |
-0.95% |
Global X Interest Rate Hedge ETF
This fund looks good on the surface, but it's up 14% over the past month. However, it is extremely dangerous. Even after last month's rally, stocks returned -33% on a price basis over the past year, according to Morningstar. The decline in net asset value was less severe, at just 14% over the past year. However, such a large difference between price and NAV return is itself a potential red flag. (A Global X spokesperson did not respond to a request for comment.
| ticker | safety | last | change | change % |
|---|---|---|---|---|
| LQDH | ISHARES US ETF TRUST INT RATE HDGD CORPORATE BD | 92.79 | +0.22 |
+0.24% |
iShares Interest Rate Hedged Corporate Bond ETF
A fund like the iShares Interest Rate Hedged Corporate Bond ETF may be a better bet. The fund aims to deliver the returns of a corporate bond index while reducing interest rate risk. The fund's return this month was about 0.8%. Of course, in the long run, that extra protection could hurt investors if interest rates eventually start to fall. Over the past 12 months, the fund returned just 10%, compared to its unhedged sibling, the iShares iBoxx $ Investment Grade Corporate Bond ETF, which returned 14%.
| ticker | safety | last | change | change % |
|---|---|---|---|---|
| GLD | SPDR Gold Shares Trust – USD ACC | 253.36 | +0.53 |
+0.21% |
On August 23, 2017, a gold bar was presented at the German Central Bank in Frankfurt am Main, central Germany. (Photo credit: ARNE DEDERT/dpa/AFP via Getty Images/Getty Images)
But investors who don't want to mess with their bond portfolios have another option: gold. The yellow metal is near all-time highs. Still, if markets are truly worried about a resurgence in inflation, gold could benefit further. This has certainly been the case in the past few weeks. While bonds slumped in October, gold rose 4.5%.
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Email Ian Salisbury at ian.salisbury@barrons.com.
This content was created by Barron's, a Dow Jones Company. Barron's is published independently from Dow Jones Communications and the Wall Street Journal.
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October 29, 2024 16:20 ET (20:20 GMT)
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