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There are two basic ways to understand what is happening within the overall bond market. You can view the changes in credit spreads for certain segments – or you can just view the total return charts.

These are three bond ETFs to watch as they represent some key bond market indexes (click to enlarge):


Below is a consolidated total return chart for these three key benchmarks.

Source: ETFreplay.com charts

Note that Treasury bonds have been outperforming while high-yield bonds have dropped --- a widening in credit spreads. You can see that this translated to HYG investors as a -7.1% drawdown (using closing prices).

Investment-grade bonds have thus far not corrected much, though the spreads there have widened simply due to the rally in Treasuries (Treasury yields have been dropping while I-G bonds tread water).

Note that these are total return charts, not price charts. Total return incorporates both the income and price change (as well as any ETF distributions) that occur. If you view simple price charts on a standard website --- the price charts will have massive tracking error vs. the indexes they are supposed to track. It’s not that the ETFs don’t track the indexes well -- because they do --- it’s just the fact that the standard price charts don’t reflect index movement. Index changes are always based on total return and price charts are not.

Treasury bonds have been a safe-haven lately as large institutions have rotated out of risk assets. High-yield bonds vs Treasuries is one of many index ETF indicators you should add to your watch list. This is easy to do with total return charts.

Disclosure: Author holds a long position in IEF

Source: 3 Bond ETFs to Keep Abreast of Market Trends