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The Last Defense: 1-Year Trends Go Red, Except For US Bonds

Summary:
As risk-off sentiment deepens around the world due to the coronavirus pandemic, red ink has spread to nearly every corner of the major asset classes. For the one-year trend, however, there are still two slices of global markets holding on to modest gains, US bonds, based on a set of exchange-traded funds. Vanguard Total US Bond Market (BND) posted a 4.9% total return for the trailing one-year window through Friday, Mar. 20. The fund holds a mix of “investment-grade” bonds, although it’s a safe assumption that the ETF’s support of late is heavily and perhaps exclusively due to its Treasury holdings. By contrast, much of the corporate bond landscape, including investment-grade credits, has taken a hit lately. For the moment, BND’s Treasury holdings are a net positive in offsetting

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As risk-off sentiment deepens around the world due to the coronavirus pandemic, red ink has spread to nearly every corner of the major asset classes. For the one-year trend, however, there are still two slices of global markets holding on to modest gains, US bonds, based on a set of exchange-traded funds.

Vanguard Total US Bond Market (BND) posted a 4.9% total return for the trailing one-year window through Friday, Mar. 20. The fund holds a mix of “investment-grade” bonds, although it’s a safe assumption that the ETF’s support of late is heavily and perhaps exclusively due to its Treasury holdings. By contrast, much of the corporate bond landscape, including investment-grade credits, has taken a hit lately. For the moment, BND’s Treasury holdings are a net positive in offsetting losses from the non-Treasury components of the portfolio on a one-year basis.


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On shorter-term basis, however, the pressure is building. Last week BND lost 1.9%, which followed a hefty decline in the previous week.

The Last Defense: 1-Year Trends Go Red, Except For US Bonds

The iShares TIPS Bond ETF (TIP) is also in moderately positive territory for the one-year trend via a 4.8 total return. In recent days the fund, which holds inflation-indexed Treasuries, has suffered sharp declines but mounted a strong but partial rebound last Thursday and Friday.

Otherwise, the major asset classes are underwater for one-year results. Most of the ETF proxies are suffering varying degrees of double-digit losses as of last week’s close vs. the year-ago levels (based on trailing 252 trading days). The steepest decline: broadly defined commodities: iShares S&P GSCI Commodity-Indexed Trust (GSG) has tumbled 40.4% over the past year.

The Global Market Index (GMI.F) is suffering too. This unmanaged benchmark that holds all the major asset classes (except cash) in market-value weights is down 15.6% for the trailing one-year window. That’s a deep cut, but GMI’s loss is middling vs. the rest of the field.

The Last Defense: 1-Year Trends Go Red, Except For US Bonds

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By James Picerno


James Picerno
James Picerno is a financial journalist who has been writing about finance and investment theory for more than twenty years. He writes for trade magazines read by financial professionals and financial advisers. Over the years, he’s written for the Wall Street Journal, Barron’s, Bloomberg Markets, Mutual Funds, Modern Maturity, Investment Advisor, Reuters, and his popular finance blog, The CapitalSpectator.

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