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Fixed income is one of the two key asset class categories in portfolio building. The main risks in fixed income, interest rate risk and credit risk are represented by various long/intermediate/short maturity bonds and high yield (junk), credit bonds. These indices provide important clues to debt market conditions that are key to asset allocation strategies. MyPlanIQ tracks detailed weekly bond trend movement. We use ETFs that represent the bond classes.

The Federal Reserve's low rate policy has driven down bond yields to historical lows. The Fed's QE2 announced last week showed the Fed's commitment to maintain a long period of low rates to stimulate the economy. Investors should take note of the 20+ year Treasury bonds that has had trouble recently: This reflects a belief that eventually, Fed's action will result in much higher inflation. International fixed income bonds are rising because of the U.S. dollar weakness.

Asset Class

Symbol

8 Nov
Trend Score

Direction

U.S. Total Bond

BND

6%

First Week

International Treasury

BWX

8%

First Week

Intermediate Term Credit

CIU

10%

First Week

California Muni

CMF

5%

First Week

Short Term Credit

CSJ

4%

First Week

Intermediate Treasury

IEF

14%

First Week

High Yield

JNK

19%

First Week

Long Term Credit

LQD

13%

First Week

MBS Bond

MBB

7%

First Week

National Muni

MUB

6%

First Week

New York Muni

NYF

4%

First Week

Emerging Mkt Bonds

PCY

20%

First Week

Treasury Bills

SHV

0%

First Week

Short Term Treasury

SHY

2%

First Week

Inflation Protected

TIP

10%

First Week

10-20Year Treasury

TLH

13%

First Week

20+ Year Treasury

TLT

5%

First Week

International Inflation Protected

WIP

12%

First Week


Top Five Indicators (Click to enlarge)



Emerging market bonds continued to do well, mostly due to dollar weakness and a stronger outlook in emerging market conditions. Junk bonds and credit bonds are also doing well. The Treasury bonds, especially 10+ years are worth watching. Even though they are still among the top five, they had 4-week negative returns.

Bottom Five Indicators (Click to enlarge)


The worst performers are Treasury bonds, especially in the 20+ year ones. Again, it is telling that investors definitely have a negative outlook in the long term for fixed income. Other bottom performers all have a less risky nature, reflecting investors chasing higher yields and increasing risk appetite.

In conclusion, bonds in general continue to do well. Investors should keep an eye on such a euphoric outlook and watch carefully on the possible turn that eventually will happen: Exceptional low rates have to come with a price and can only be sustainable for so long.

Disclosure: No position

Source: ETF-Based Bond Trend Indicators: Low Rates Come With a Price