Bond-fund investors feel the sting of rising Treasury yields

The yield on the bellwether 10-year Treasury note has jumped from 1.37% in early July to 1.70 Thursday.
OCT 05, 2016
Bond-fund investors are already starting to feel the sting of rising interest rates. The yield on the bellwether 10-year Treasury note has jumped from 1.37% July 8 to 1.70 Thursday. When interest rates rise, bond prices fall, and at current yields, investors aren't getting much income to cushion the blow. Typically, the longer a bond's maturity, the bigger the price drop when interest rates rise. And that's been the case in the bond market's recent selloff. One of the hardest-hit funds is the Vanguard Extended Duration Treasury ETF (EDV), which has fallen 8.02% since the bond market's July peak. The fund invests primarily in zero-coupon bonds. Similarly, PIMCO's 25+ Year Zero Coupon U.S. Treasury ETF (ZROZ) has fallen 7.65%. The median long-term government ETF — half higher, half lower — is down 5.12%. Funds that invest in long-term Treasury Inflation-Protected Securities have also been deflated a bit, falling a median 1.14%. Funds that invest in shorter-term debt have taken smaller hits. iShares Core U.S. Treasury fund (GOVT), the worst performer in the intermediate-term government ETF category, has fallen 1.52% since July, vs. an average loss of 0.85%, according to Morningstar, the Chicago investment trackers. Short-term government bond funds have fallen 0.18%. But the picture is hardly one of widespread woe. Corporate bonds, especially high-yield funds, have held up well. The average junk fund has turned in a decidedly untrashy 2.53% gain since the July low in yield, in part because maturities on high-yield debt tend to be relatively short and economic conditions have been relatively good. The top ETF performer was AdvisorShares Peritus High Yield (HYLD), up 4.45%. But Northeast Investors Trust (NTHEX), a venerable high-yield fund, has posted a 7.66% gain since July. PIMCO Capital Securities and Financials (PFANX) ranked second in the open-end junk world, rising 5.41%. Emerging markets debt has also performed well as U.S. yields rose. The median emerging markets fund rose 1.57%, and the median fund that invested in local currency debt emerging debt gained 1.38%. Nontraditional bond funds, most of which aim to shield investors from rising rates, also held up well, gaining a median 2.09% since the July peak in the bond market. Top performer was the WisdomTree BofA Merrill Lynch High Yield Bond Negative Duration ETF (HYND), which gained 5.10%. Despite the recent losses, bond fund investors have little to complain about, says Sarah Bush, director of fixed income strategies at Morningstar. “It's generally been a good year for all kinds of bond funds,” Ms. Bush said. “All bond categories are in positive territory year to date, and long-term government bonds are up 12.3%.”

Latest News

Judge OKs more than $90 million in settlement money for GWG investors
Judge OKs more than $90 million in settlement money for GWG investors

Mayer Brown, GWG's law firm, agreed to pay $30 million to resolve conflict of interest claims.

Fintech bytes: Orion and eMoney add new planning, investment tools for RIAs
Fintech bytes: Orion and eMoney add new planning, investment tools for RIAs

Orion adds new model portfolios and SMAs under expanded JPMorgan tie-up, while eMoney boosts its planning software capabilities.

Retirement uncertainty cuts across generations: Transamerica
Retirement uncertainty cuts across generations: Transamerica

National survey of workers exposes widespread retirement planning challenges for Gen Z, Millennials, Gen X, and Boomers.

Does a merger or acquisition make sense for your firm? Why now is the perfect time to secure your firm’s future
Does a merger or acquisition make sense for your firm? Why now is the perfect time to secure your firm’s future

While the choice for advisors to "die at their desks" might been wise once upon a time, higher acquisition multiples and innovations in deal structures have created more immediate M&A opportunities.

Raymond James continues recruitment run with UBS, Morgan Stanley teams
Raymond James continues recruitment run with UBS, Morgan Stanley teams

A father-son pair has joined the firm's independent arm in Utah, while a quartet of planning advisors strengthen its employee channel in Louisiana.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave