Bonds: Total Market

(New York)

The market took a nosedive in the middle of the day today as investors were walloped with a hot CPI inflation reading. The CPI rose an eye-popping 5.4% in June, with core inflation coming in at 4.5%. The market was anticipating a flat 5.0% CPI number. Indexes turned downward immediately following the report. It should be noted than June 2020 was the nadir of the pandemic inflation readings, so that makes this report look even bigger.


FINSUM: The inflation boogeyman returns. Beware a big sell-off across the board in bonds, especially if the Fed or a member of the Fed makes any tightening comments.

(Washington)

The Fed announced an unprecedented monetary stimulus package this morning. The central bank declared that its new bond buying program was unlimited, and that it would immediately start buying hundreds of billions of different types of bonds in an effort to unclog credit markets. They also extended lending facilities to new markets such as municipal bonds.


FINSUM: The Fed has been far from shy to in reacting to this crisis, but nothing it is doing seems to be helping markets much. Post-announcement, the Dow is already down over 3%.

(New York)

It has taken a long time for bond ETFs to begin getting even a tiny bit of the attention stock ETFs have gotten, but the trend has finally taken hold in earnest, and that s good news for investors. While active bond funds have done well in recent years (perhaps due to it being considered easier to outperform a bond index than a stock index), bond ETFs have now started to surpass them in growth. This is adding much more liquidity to bond funds, which benefits investors substantially. Both active and passive bond funds have taken in over $200 bn each in 2019.


FINSUM: While “liquidity mismatch” worries will continue to linger, the fact is that bond ETFs make a lot of sense (perhaps even more than stock ETFs?) because they circumvent minimum-buy and illiquidity issues, allowing many more people to access hard-to-reach corners of the bond market.

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