Displaying items by tag: bonds

A $4 billion investment advisor based in Washington, D.C. recently announced the launch of a new suite of US Treasury ETFs that will make it easier for investors to access the US Treasury market. F/m Investments' new US Benchmark Series will allow investors to own each “Benchmark” US Treasury in a single-security ETF. Each fund will hold the most current US Treasury security that corresponds to its stated tenor. The initial three ETFs are the US Treasury 10 Year ETF (UTEN), the US Treasury 2 Year ETF (UTWO), and the US Treasury 3 Month Bill ETF (TBIL). While Treasuries are very liquid securities, they can be hard to trade. This is especially true for investors who must roll them over frequently to maintain maturity. The new ETFs will hold each maturity's most current Treasuries. 

Finsum: A new suite of single bond ETFs will provide investors access to a maturity’s most current treasury.

For investors with assets in active bond mutual funds, there has never really been a time to implement tax-loss harvesting. Tax-loss harvesting is the process of selling securities at a loss to offset capital gains tax due on the sale of other securities. Until this year, investors had mostly experienced gains in their fixed income holdings tracing back to the 2008-2009 financial crisis. However, due to significant losses in fixed income this year, an opportunity has arisen for investors to transition their assets to ETFs through tax-loss harvesting. According to Morningstar Direct data, US fixed income funds have seen more than $205 billion in redemptions during the first half of the year. Sales in taxable bond ETFs, on the other hand, while slowing, still generated $53.8 billion in net inflows during the same period. This has set the stage for tax-loss selling out of mutual funds and into ETFs.

Finsum: Losses in active bond funds this year sets the stage for tax-loss harvesting into fixed income ETFs.

Bond outflows are starting to slow as a response to rising rates and lower prices. The Fed’s hawkish policy stance has been elevating prices but now they are relatively attractive given the return. Previously bond prices were held purely as a safety net because yields on government debt generated no income, but rising rates are making them a competitive income option for those investors. In addition, more investors are looking for a way to mitigate volatility in these trying times, which has them shifting toward bonds and out of high-risk assets. Additionally, a whole new generation of investors are much more comfortable with ETFs and are thus turning to bond funds as their source of security.

Finsum: Bonds could make a comeback if inflows turn around they could be bottoming out price-wise.

It’s no secret bond funds have been on a track of suffering the last couple of months, but that might be turning around especially with mutual fund competitors. The counter cyclical effects of bonds and equities have broken down. In the month of May bond mutual fund outflows increased rapidly to over $90 billion, but bond ETFs saw an increase of $34 billion. Many mutual funds have been losing slowly over time to their ETF competitors. One of the complexing aspects of this relationship is that there has been a significant increase in active ETFs in the last couple of years. The Feds impact on interest rates have really shifted the traditional 60/40 portfolio because rising rates have contributed to the spiking volatility.

Finsum: The increase in active ETFs particularly for fixed income is a direct result of the macro alpha that is more prevalent than ever.

There has been a sharp uptick in the high-value bond ETF trades in the last 12-months which most investors are attributing to activity from large institutional investors. Transactions are up as much as 36% on some platforms from the previous year. This has been part of a longer more ongoing trend that has been successful for many bond funds. Since the GFC, investors have questioned the resiliency of these funds to economic downturns, but regulators and investors alike are pleased with their performance in the covid pandemic. Just as important to this is the support from the Fed and Fiscal policy to the economy. Stepping in with bond relief has helped these ETFs. Finally, the increase in investment in bond ETFs has actually led to tighter underlying spreads in bond markets themselves and reflects better liquidity.

Finsum: Many believe that over-investment in index funds could be disruptive to equity volatility over time, but it appears to be stabilizing bond spreads.