Impending rate cuts in the United States! Can we target bond ETFs in this "golden age" to survive the chaotic market?
In just two weeks, the strong rebound in the U.S. stock market has made up for the sharp drop in early August, and the market has become "extremely optimistic" about the future of U.S. stocks. However, while the confusion has subsided, there are still many selling factors, such as the U.S. presidential election, sluggish economic data, substantial financial tightening, overvaluation of the stock market, and geopolitical risks. The market should still be wary of potential volatility in the future.
In this situation, stocks with the benefits of a lower US interest rate and defensive characteristics are showing strong movements and attracting attention.It reached a temporary high during the market crash on August 5th and has shown strong returns since July.It is a bond ETF in the US stock market.Compared to bonds, bond ETFs are not dependent on maturity, have high flexibility, and have the advantage of diversified investment.Further growth is expected, supported by strong demand..
Matt Montemuro of BMO Global Asset Management (GAM) predicts that with the combination of easing cycles and market volatility, many investors who have moved away from fixed income products will return.
According to BlackRock, the inflow of funds into the world's bond ETFs in July was $60.5 billion.It set a new record.State Street Global Advisors, the third-largest ETF issuer in the United States, recorded an inflow of $41 billion into its US equity bond ETFs in the first half of this year.This has already exceeded the annual record for 2023.they explained.
With the approaching interest rate cut, there is a strong tailwind.
With the changing interest rate environment, interest in bonds has been reignited in the market. Due to expectations of a rate cut, the price of US bonds is rising.Regardless of whether the US is facing an economic downturn or not,the Fed's policy adjustment is a tailwind for the bond market.The current high interest rate environment allows investors to lock in profits in advance.However, in the long run, the dynamics of supply and demand will impact short-term prices, and the Fed's policy outlook will guide long-term yields.In addition, bond yields are returning to levels from over a decade ago, making bonds an attractive asset class once again. BlackRock's Rick Leader points out that investors are shifting from cash to bonds in anticipation of lower interest rates to seek higher yields.Now, there is a shift from cash to bonds as investors anticipate lower interest rates."The golden age of bonds.Being called.
In an environment of declining interest rates, real interest rates are declining, and the yield on cash deposits continues to decrease. "More people are shifting from cash to bonds. Cash has generated many returns, but now that the Fed has started cutting interest rates, the chance is gone," Mr. Leader said.
Returns on major bond asset classes after the past 8 cycles of Fed easing.As follows:
Bonds are the most beloved hedge asset in the market.
According to the traditional inverse correlation, the correlation between stocks and bonds is negative. However, since the aggressive rate hikes that started in March 2022, both the stock market and the bond market have crashed, completely overturning their traditional inverse correlation. However, in the past month, bonds and stocks have been moving in opposite directions, possibly returning to the trend before 2022.influenceExists.
On August 5th, the S&P 500 fell by 3% and the market experienced a major crash. The volatility index (VIX) surged from 23 to over 60, reaching the third highest level since the pandemic and the 2008 financial crisis. Amidst this chaos, bond ETFs showed resilience and ETFs focused on US bonds and US aggregate bonds in particular gained attention. While bond yields generally declined, these ETFs attracted significant inflows and demonstrated strong performance.
When stock prices fall due to valuation corrections, investors tend to seek 'safe havens' to protect their capital from value declines.Safe havensare sought after in such situations.
- Strong demand! Countries around the world significantly increase holdings of US bonds.
In the case of US bonds,increased holdings from countries around the world continue to be a major trend.。 米財務省が発表した最新の国際資本移動（TIC）によると、6月に中国が保有する米国債は5月に比べて11.9 billionドル増加し、昨年12月以来最大の月間増加量を記録した。その他、フランス、イギリス、カナダも6月に米国債を大規模に買い増した。TICはまた、海外投資家が保有する米国債の規模がさらに拡大し、8.21 trillionドルという歴史的な新高値を記録したことを示している。
この背景には、金価格の高騰も関係している。 アナリストによれば、世界の中央銀行の多くが外貨準備を強化し、リスクヘッジのために金の保有を優先していたと考えている。しかし、Due to the current surge in gold prices, the cost of gold investment has sharply increased.As a result, some central banks have once again turned their attention to US bonds. In fact,there is a high similarity and substitutability between US bonds and gold from the perspectives of asset safety, risk aversion, and liquidity..
- During an economic slowdown, bonds provide more stability than stocks.
During an economic slowdown, bond prices tend to be more stable than stock prices and have a positive impact. While the US economy may have enough strength to support stock price increases in 2024, compared to 2023,there is less risk of a significant adjustment.As the current economic downturn continues, it is important to consider the stability and potential returns of bond investments.It is listed on May 23. It tracks the index of Mirae Asset India Select Top10+Index (including dividends) in yen.
The counterattack of high yield and stable dividends
There is a possibility that bond yields will continue to decline in the second half of 2024, but they are still at historically high levels not seen in the past 16 years. Bond ETFs usually pay interest and coupons to investors based on bond yields.Therefore, bond ETFs are an attractive option for investors who prefer monthly dividends and interest payments.This is because most individual bond issuers pay interest semi-annually or annually.
In the US bond ETF market,government bond ETFs、Comprehensive bond market ETF、Corporate bond ETFAccounting for the largest proportion (approximately 80% of the market size) Among the three types.
Government bond ETF
There are short-term (less than 1 year), medium-term (1-10 years), and long-term (more than 10 years) maturities for bonds.The longer the duration, the more susceptible it is to interest rate fluctuations.Generally, Short-term bonds are generally the most stable, while long-term bonds are expected to have high returns but also have high volatility.Lowering interest rates is advantageous for the price of long-term bonds, so among bonds of different maturities, $iShares 20+ Year Treasury Bond ETF (TLT.US)$isshowing the best performance recently..
Other US bond ETFs: $Ishares Trust 10-20 Year Treasury Bd Etf (TLH.US)$、 $iShares 7-10 Year Treasury Bond ETF (IEF.US)$、 $iShares 3-7 Year Treasury Bond ETF (IEI.US)$、 $iShares 1-3 Year Treasury Bond ETF (SHY.US)$、 $iShares 0-3 Month Treasury Bond ETF (SGOV.US)$、 $Schwab Strategic Tr Short-Term Us Treasury Etf (SCHO.US)$、 $SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL.US)$、 $Vanguard Long-Term Treasury ETF (VGLT.US)$、 $Short-Treasury Bond Ishares (SHV.US)$etc.
● Investment Grade Bond Market ETF.
Investors who want to invest in the entire bond market without limiting to a specific category.is $Vanguard Total Bond Market ETF (BND.US)$や $iShares Core US Aggregate Bond ETF (AGG.US)$etc.with the largest asset size and suitable for long-term investment.Investment Grade Bond Market ETFcan be selected. Additionally,For investors who desire global diversification, Auto-translation will be the best fund choice.According to FactSet data, Auto-translation recorded the largest monthly increase this year, which is linked to a wide range of indexes for investment grade bonds in the United States. $Vanguard Total International Bond ETF (BNDX.US)$With the increase in the stock price of ETFs, the fund recorded a total return of 2.4% last month, the largest monthly total return since December last year.
Auto-translation is the largest fund choice for investors who wish to have worldwide diversified investments. $iShares Core US Aggregate Bond ETF (AGG.US)$isAccording to FactSet data, in July, it recorded the largest monthly increase among a wide range of indexes linked to investment grade bonds in the United States.With the increase in the stock price of ETFs, the fund recorded a total return of 2.4% last month, the largest monthly total return since December last year.According to FactSet data, Auto-translation recorded the largest monthly total return since December last year.It became.
● Corporate bond ETF
$Ishares Iboxx $ Investment Grade Corporate Bond Etf (LQD.US)$is an investment grade corporate bond ETF that tracks the performance of the iBoxx USD Investment Grade Corporate Bond Index. This ETFholds a large number of highly rated corporate bondsand these companies usually have a sound financial condition and high credit ratings, soinvestors can obtain a relatively stable investment with higher yield than government bonds.
Source: Bloomberg, Yahoo Finance, Seeking Alpha, moomoo, marketwatch
This article uses auto-translation partially.
moomoo News Sherry
This article uses auto-translation partially.
moomoo News Sherry
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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