Bullish bond investors are unwilling to be knocked off-center despite being in the eye of the inflation storm.
This comes as the consumer price index (CPI) hit a three-decade high during the month of October. Nonetheless, bond investors are either confident in the debt market, exceedingly stubborn, or a little bit of both.
“A clutch of bond bulls is betting that the world’s biggest fixed income market will shrug off the surge in US inflation to a 30-year high as long-term shifts in the American economy keep yields depressed,” a Financial Times article says. “Data showing that consumer prices rose 6.2 per cent in the year to October briefly jolted the US Treasury market earlier this month. However, yields on debt maturing decades in the future remain well below their 2021 peaks despite expectations for a protracted period of elevated price growth.”
Inflation can certainly be the archenemy of bonds, eroding their income-producing benefits over time. Nonetheless, bond investors appear undaunted even as consumers continue to see rising prices and talks of stagflation unnerve the markets.
“For some longtime bond bulls, the market’s nonchalance in the face of surging prices — typically kryptonite for debt investors — is a vindication of the view that inflation will not leave a lasting dent on the market and, when the dust settles on the economic recovery, the pre-pandemic landscape of low interest rates will be largely unchanged,” the Financial Times article says further.
A Total Bond Market ETF
Exchange traded fund (ETF) investors who share the same sentiment of bullishness can get aggregate bond exposure. One product from Vanguard, the Vanguard Total Bond Market Index Fund ETF Shares (BND), does just that.
BND presents bond investors with an all-encompassing, aggregate solution to getting U.S. bond exposure. It’s an ideal solution for investors seeking to complement their equities exposure.
BND seeks to track the performance of Bloomberg U.S. Aggregate Float Adjusted Index. This index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.
For more news, information, and strategy, visit the Fixed Income Channel.