Treasury yields have been rising sharply since the end of April, and some of the ETFs with the heaviest redemptions are bond funds. In particular, investors are selling fixed-income ETFs tied to Treasury Inflation Protected Securities and corporate bonds, both investment grade and high-yield.
Indeed, bond ETFs are losing strength as investors see an end to the three-decade long Treasuries bull rally and shift into the equities on the improving economic conditions.
The benchmark 10-year Treasury yield is up to 2.53% from a 2013 low of 1.61% on May 1, reports Susanne Walker for Bloomberg. Meanwhile, the aggregate earnings yield of stocks in the S&P 500 Index was 6.4% of the index’s price level.
To put this in perspective, the differential between equity and bond yields show an average 1.9 percentage point gap since 2000.
After the Fed hinted at tapering its monthly bond purchasing plan later this year, investors are pulling out of Treasuries. In the week ended June 5, investors pulled $9.1 billion from fixed-income mutual funds and ETFs – the second-highest total in over 20 years, according to Lipper data. [iShares: Fed Tapering Won’t Cause a Bond Market Armageddon]
“The lost decade for bonds has begun,” Howard Ward, the chief investment officer at Gamco Investors Inc., said in the article. “Stocks are likely going to be the asset class of choice over the course of the next 10 years. Now that the tide has turned and the economy is doing better, investors in bonds are going to have a hard time making any money.”
Currently, JPMorgan Chase & Co, Barclays Plc, Bank of America Corp., Morgan Stanley and Goldman Sachs Group are recommending stocks over most bond picks.