Bond exchange traded funds strengthened Monday with yields falling off as investors dumped risky assets and turned to safe-haven fixed income assets on fears that the surge in Covid-19 Delta variant infections could upend the nascent economic recovery.
“There’s concern among investors the Delta variant could reset the clock in terms of the progress we’ve made with COVID-19 and the pickup in the economy,” Andre Bakhos, managing director at New Vines Capital LLC, told Reuters.
Meanwhile, yields on benchmark 10-year Treasury notes slipped below 1.2% to the lowest level in five months.
Investors turned risk off and sold off equities, notably stocks tied to the reopening, on the murkier outlook for the shape of the economic recovery amid hot inflation readings and the spread of Covid variants.
“The entire financial market is acting as though a significant economic slowdown is nearing,” Jim Paulsen, chief investment strategist at the Leuthold Group, told CNBC.
The “Covid redux is adding to fears as renewed mask mandates are scaring many that economic closures may also start to happen again. This fear is causing some to lower real GDP estimates again which is driving bond yields lower and hitting economically sensitive stocks like cyclical sectors and small cap stocks the most,” Paulsen added.
Investors who are looking to strengthen their fixed income strategies can consider the Avantis Core Fixed Income ETF (AVIG), which invests in a broad set of debt obligations across sectors, maturities, and issuers. AVIG pursues the benefits associated with indexing, such as diversification and transparency of exposures. Yet the fund also has the ability to add value by making investment decisions using information embedded in current yields.
The Avantis Short-Term Fixed Income ETF (AVSF) also invests primarily in investment-grade quality debt obligations from a diverse group of U.S.- and non-U.S. issuers with a shorter maturity.
Additionally, the actively managed American Century Diversified Corporate Bond ETF (NYSEArca: KORP) invests in U.S. dollar-denominated corporate debt securities issued by U.S. and foreign entities, but may also hold securities issued by supranational entities. Up to 35% of the fund’s net assets may be invested in high-yield securities or junk bonds. The fund may also invest in derivative instruments such as futures contracts and swap agreements. The weighted average duration of the fund’s portfolio is expected to be between three and seven years.
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