This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Death of Bond ETFs? Change Your Fixed-Income Lenses

NEW YORK ( ETF Expert) -- The S&P 500 is above 1500. CBOE S&P 500 Volatility (VIX) is sitting near 15-year lows. And 88% of iShares S&P 100 (OEF) component stocks are above respective 200-day moving averages.

Normally, you might hear more discussion about complacency and/or an imminent selloff. Instead, you're hearing more about the "Great Rotation" out of bonds and into stocks. In fact, if Laszlo Birinyi or Jeremy Siegel have your ear, we've just barely begun an exuberant stage for equities.

Bullish prognosticators certainly do have a mound of evidence to fall back on. Consider the iShares 20-Year Treasury Bond Fund (TLT). Its current price is well below short- and long-term trendlines. And the 50-day recently crossed below the 200-day ... a price movement pattern known as a "death cross." (Note: The last "death cross" for TLT occurred more than two years ago.)

It may be reasonable to agree that long-term Treasuries are facing hardship. Or perhaps ... the potential rewards of owning TLT over the next year (e.g., yield, capital appreciation, perceived safety, etc.) are not commensurate with the possible risks (e.g., loss of principal, excessive volatility, etc.).

On the other hand, it may be a bit nearsighted to dismiss the entire community of debt instruments. For example, over the past three months, the S&P 500 SPDR Trust (SPY) has put together 5.5%. The fiscal cliff impasse kept the market range-bound for a period of time, but the market has since gone on to hit a five-year peak; similarly, TLT has logged a dismal 3.1% decline.

Nevertheless, a wide range of bonds has provided admirable risk-adjusted returns over the period. SPDR Convertible Bonds (CWB) garnered 4.1%, iShares High Yield Corporate (HYG) registered 2.2%, SPDR Barclay Emerging Market Local Bond (EBND) amassed 1.9% and Market Vectors High Yield Muni (HYD) served up a tax-free 1.3%.
3-Month Total Returns For A Wide Range Of Bond ETFs
Winners %
SPDR Barclays Convertible Bond (CWB) 4.1%
Peritus High Yield (HYLD) 2.6%
iShares High Yield Corporate (HYG) 2.2%
SPDR Barclays EM Local Bond (EBND) 1.9%
PIMCO 0-5 ST High Yield (HYS) 1.7%
PowerShares Senior Loan (BKLN) 1.6%
Market Vectors High Yield Muni (HYD) 1.3%
Losers %
Vanguard Extended Duration (EDV) -4.9%
iShares 20+ Year Treasury (TLT) -3.1%
SPDR Barclays International Treasury (BWX) -1.4%
Vanguard Long-Term Bond (BLV) -1.0%
iShares 7-10 Year Treasury (IEF) -1.0%
Vanguard Total Bond (BND) -0.5%
PowerShares Build America Bond (BAB) -0.4%

Granted, if a steady stream of outflows from intermediate- and long-term Treasuries turns into a stampede, higher Treasury yields may put pressure on other fixed-income vehicles. Indeed, if we witness a full-fledged exodus at a pace that the Federal Reserve isn't able to offset through its quantitative easing policies, stock investors might also find themselves struggling with a sharp uptick in the 10-year. After all, most of the country's mortgage and car loan euphoria is dependent on subdued five-, seven- and 10-year notes.

As of this moment, however, iShares 7-10 Year Treasury (IEF) has not entirely thrown in the towel. For the better part of nine months, it has traded in a fairly stable range.

It follows that a slow rotation out of lower-yielding Treasuries might be manageable and moderately bullish. Conversely, a rapid-fire rotation would likely bring bears back to the dance floor.

Regardless of how it ultimately plays out, it's important to recognize that not all bond ETFs are cut from the same cloth. I maintain a healthy allocation to emerging market bonds, short-term high yield bonds as well as munis in taxable accounts.

You can listen to the ETF Expert Radio Show "LIVE", via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Disclosure Statement: ETF Expert is a Web site that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.

Gary Gordon reads:

Real Clear Markets
Jeff Miller
Charles Kirk
On Twitter, Gary Gordon follows:

Jonathan Hoenig
Doug Kass
Hard Assets Investor

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.75 -1.10%
FB $117.53 0.69%
GOOG $693.00 0.29%
TSLA $240.76 -2.81%
YHOO $36.60 0.03%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs