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Last week, we continued to observe major weakness in fixed income markets. From our Market View, one can see that most bond ETFs underwent 1-2% loss. Municipal bonds and intermediate term treasuries were the biggest losers. Municipal bonds were avoided due to the concerns on the dire financial situations of state and local governments, let alone the extreme low yields to begin with. Investors were also worried about longer term bonds, including treasuries and corporate bonds based on inflation outlook.

Based on the major asset price trends in the following table, other noticeable developments include:

  1. US Stocks were very strong, now placed in the third spot among all other major asset classes.
  2. US REITs continued their weakness, losing 1.3% last week and were out of top five spots.
  3. all fixed income asset classes were at the bottom of the ranking: the lower the perceived risks based on conventional wisdom, the lower their rankings were.
  4. Broad base commodities were relatively intact while gold continued its correction.
Assets Class Symbols 12/10
Frontier Market Stks (NYSEARCA:FRN) 13.93% 13.33% ^
International REITs (NYSEARCA:RWX) 10.35% 10.73% v
US Stocks (NYSEARCA:VTI) 10.21% 9.57% ^
Emerging Market Stks (NYSEARCA:VWO) 9.64% 11.67% v
Gold (NYSEARCA:GLD) 9.46% 11.1% v
Commodities (NYSEARCA:GSG) 8.74% 10.22% v
US Equity REITs (NYSEARCA:VNQ) 7.67% 9.21% v
International Developed Stks (NYSEARCA:EFA) 6.51% 6.94% v
US High Yield Bonds (NYSEARCA:JNK) 4.33% 4.81% v
Emerging Mkt Bonds (NYSEARCA:PCY) 2.82% 3.14% v
US Credit Bonds (CFT) 0.72% 0.94% v
International Treasury Bonds (NYSEARCA:BWX) 0.54% 0.98% v
Treasury Bills (NYSEARCA:SHV) 0.03% 0.03% v
Total US Bonds (NYSEARCA:BND) -0.19% 0.59% v
Intermediate Treasuries (NYSEARCA:IEF) -0.73% 1.03% v
Mortgage Back Bonds (NYSEARCA:MBB) -1.71% -1.8% ^
Municipal Bonds (NYSEARCA:MUB) -3.5% -1.81% v

The takeaway is that investors continued their strong risk appetite. Among risk assets, US stocks stood out as worries in European debt markets and inflation pressure in emerging markets dampened demands on those assets.

Source: U.S. Stocks Strong; Other Bond Markets Continue to Slump