Bond exchange traded funds are outperforming equities as risk-off sentiment permeates U.S. financial markets.
The iShares Core Total U.S. Bond Market ETF (NYSEArca: AGG), which tracks the broad U.S. investment-grade bond market, including government, corporate and mortgage pass-through securities, is up 1.47% year-to-date while the S&P 500 Index has gained 1.45% and the Dow Jones Industrial Average dipped 1.09%.
AGG has a 5.18 year duration, a 2.09% 30-day SEC yield and comes with a 0.08% expense ratio.
Meanwhile, the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT)increased 6.78% so far this year. TLT tracks long-term Treasury bonds, showing an effective duration of 16.55 years. The ETF comes with a 3.51% 30-day SEC yield and a 0.15% expense ratio. [Bond ETFs Help Investors Navigate Changing Market Tides]
Bond ETFs str strengthening this year as benchmark 10-year Treasury yields have shed about 25 basis points. Bond prices and yields have an inverse relationship, so a falling yield corresponds to rising prices.
However, yields on the low end of the curve have been rising after Fed Chair Janet Yellen suggested the fed funds rate may increase by the middle of 2015, Bloomberg reports.
Shyam Rajan, an interest-rate strategist at Bank of America Corp., though, points out that the long end of the yield curve is being supported by longer-term investors who are just sitting on holdings.