History is filled with economic cycles, and the Treasury exchange traded fund (ETF) bonds market may soon come under pressure.
The world’s largest bond fund, PIMCO Total Return Fund (PTTRX), reduced its exposure to U.S. government debt to zero last month, reports Joe Morris of Ignites. Bill Gross, the fund manager, has been vocal about U.S. deficit spending and and interest rates; advising investors to prepare for the end of stimulus injections and that government debt should be “exorcized” from investors’ portfolios. Gross’ move underscores his belief that bond yields will rise and prices will fall.
Back in 1994, fixed-income investors saw negative price movements and total return losses, writes Tom Sowanick for The International Business Times.
Interest rates jumped across all fixed-income markets after the Federal Reserve tightened its monetary policy. As a result, bond investors dumped their fixed-income holdings, which brought yields higher, with the 2-year T-note rising 350 basis points, 5-year T-note yields rising 266 basis points and the 10-year T-note yields lifting by 210 basis points. [ETF Spotlight: TMV.]
The year 1994 may have been a terrible year for fixed-income investors, but Sowanick, co-president and chief investment officer at Omnivest Group, believes that the next twelve may fare worse.