Foreign Bonds Continued To Trend Higher Last Week

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Includes: BND, BWX, DJP, EMLC, HYXU, JNK, PICB, TIP, VEA, VNQ, VNQI, VTI, VWO, WIP
by: James Picerno

The safe-haven trade remained in force during last week's trading activity for the major asset classes, based on a set of proxy ETFs. Bonds were the clear winners for the five trading days through February 12, with the SPDR Barclays International Treasury Bond ETF (NYSEARCA:BWX) leading fixed-income higher for the second week in a row with a solid 1.4% total return. The modestly weaker US dollar has been a factor in boosting the performance of foreign bonds in unhedged terms. Note that the US Dollar Index has eased in each of the past two weeks. Meanwhile, US REITS (NYSEARCA:VNQ) posted last week's biggest decline among the major asset classes, tumbling 4.4% for the week just passed.

Accompanying the increase in bond prices generally (and a commensurate decline in yields) was a negative bias for risky assets last week. The selling pinched an investable ETF-based version of the Global Market Index (GMI.F) for the five days through February 12. GMI.F, a passive market-valued weighted mix of all the major asset classes, shed 0.8% last week (red line in chart below).

Meantime, losses still dominate the trailing one-year return period for the major asset classes. The lone exception: US investment-grade bonds (NYSEARCA:BND), which posted a modest gain (+1.4%) through last week's close. Otherwise, red ink was spread far and wide across the performance landscape for the past 252 trading days. Not surprisingly, the negative bias is weighing on GMI.F, which is down 8.5% for the past year.

Let's note that this week's trading is off to an encouraging start, with global equity markets posting gains (the US markets are closed today in observation of Washington's birthday). "It's no surprise to see markets rebounding after the excessive movements seen over the last few weeks," Riccardo Ambrosetti, chairman of Italy's Ambrosetti Asset Management, tells Reuters.

It's been a good week so far.