Fixed-Income ETF Ideas for Today's Market

While the Federal Reserve has revealed its intent to hike interest rates some time this year, fixed-income yields may remain depressed and bond related exchange traded funds could more room to run.

On the upcoming webcast, Dynamic Fixed Income Strategies for 2016, David Mazza, Managing Director and Head of ETF & Mutual Fund Research at State Street Global Advisors, pointed out that the bond market has been in a bull market for four decades as interest rates fell. While the Fed’s easy monetary policies, which have been a big support for debt markets in recent years, is beginning to fade, other factors can continue to support bonds.

For instance, Mazza noted that increased regulation has forced banks to follow strict capital requirements, which increased the amount of high quality assets on their balance sheets and bolstered demand for Treasuries, keeping a lid on yields.

The aging baby-boomer generation is also exiting the workforce and entering their golden years, raising demand for stable sources of income, like Treasuries and other debt assets.

Meanwhile, overseas central banks have also enacted loose monetary policies that cut interest rates, with some areas adopting negative interest rates to stimulate growth. Consequently, global yield has plunged, with the yield on Bank of America Corp. Global Broad Market Index at 1.3% , its lowest in almost 20 years of data, Bloomberg reports. Consequently, Mazza argued that with the depressed yields in overseas markets, international investors may turn to the relatively more attractive yields in U.S. Treasuries.

“With more than $7.1 trillion of government debt yielding less than zero, investors searching for income have turned to Treasuries,” Mazza said.

Lastly, a strong U.S. dollar and low inflation expectations makes U.S. assets, like Treasury bonds, enticing. High inflation would typically erode the value of fixed-rate payments over time.