The U.S.-China trade war essentially poured a vat of honey all over the bond market and now investors are flocking to them like hungry bees. In fact, they’ve poured a record $155 billion into safe-haven bonds over the past three months, according to data from Bank of America Merrill Lynch.
A number of flows has been directed towards risk-off government bonds, which attracted $7.1 billion in last week alone, which represents the fourth-biggest ever inflow as market volatility from trade war news racked the markets.
“What we’re seeing from a risk standpoint at this point in the market is really investors that are seeking haven in longer duration US treasuries,” said Charlie Ripley, a senior investment strategist for Allianz Investment Management.
The capital markets are definitely keeping a watchful eye on the 2-year and 10-year yield curve, which has been inverting more often than not as of late. An inverted yield curve is of particular interest as a tried-and-true recession indicator.
Just how accurate has an inverted yield curve been in the past? It’s more of an early warning sign as opposed to a clear cut signal a recession is forthcoming.
An article in Investing Daily says, “Fixed income securities are appropriate for anyone that relies on investment income for any purpose, and who must minimize risks to capital. This is distinct from those who are attempting to build their wealth over time, in which case they would want to invest in more aggressive securities.”
It’s easy to overlook bonds as opposed to equities given their more static returns in nature as opposed to the more dynamic stocks that can move and shake when markets are roaring, as well as vice versa. While bonds may not be ideal for the adrenalin-fueled investor, they can still gain that much-needed fixed income exposure via exchange-traded funds.
As far as bonds not making money compared to U.S. equities, one can only look to the Bloomberg Barclays Aggregate Bond Index, which has been up every calendar year dating back to 1976. Furthermore, it experiences losses in only three of the last 42 years.
Lastly, bonds are ideal for every investor—retired or not. Fixed income provides a buffer against stock market volatility by being a safe haven asset, particularly when market drawdowns occur.
Investment-grade corporate bond-focused fixed-income ETF options include the iShares Intermediate Credit Bond ETF (NASDAQ: CIU), iShares iBoxx $ Invmt Grade Corp Bd ETF (NYSEArca: LQD) and Vanguard Interm-Term Corp Bd ETF (NASDAQ: VCIT). Investors looking for broad-based core bond exposure can look to a fund like the iShares Core US Aggregate Bond ETF (NYSEArca: AGG).