In a sign of just how bad things are in the bond market, of the 56 ETFs that hit new 52-week lows on Wednesday, half are bond funds. That is the result of a 10-year Treasury yield that has surged more than 46% in the past three months.
Some investors are getting the message that rising rates are destructive to fixed income portfolios. In just the past month, $3.5 billion has been pulled from U.S. bond ETFs, according to Nick Colas, chief market strategist at ConvergEx. [ETF Flows Reverse as Investors Turn Skittish]
Still, many investors may not realize just how adversely their portfolios are impacted by rising rates. According to a survey by Edward Jones, 63% of Americans don’t know how rising interest rates will impact investment portfolios such as 401(k)s, IRAs and other savings platforms. [Investors Forget How Rising Rates Kill Bonds
In fact, a full 24% say they feel completely in the dark about the potential effects,” Edward Jones said. Understanding how rising rates can punish bond portfolios is critical for ETF investors for myriad reasons, not the least of which is that some of the largest ETFs are bond funds. Of the 20 largest ETFs by assets, five are bond funds. Of those five, only the Vanguard Total Bond Market ETF (NYSEArca: BND) saw inflows over the past month.
The iShares Core Total U.S. Bond Market ETF (NYSEArca: AGG) and the iShares TIPS Bond ETF (NYSEArca: TIP) saw combined outflows of nearly $1 billion over the past four weeks, according to Index Universe data.