“On Friday, the BOJ began to reenergize the notion of looking at their policy in a way that could steepen the yield curve,” said Robert Tipp, chief investment strategist at PGIM Fixed Income. “The message previously was that they don’t want too much volatility, but they might want a bit of a fine-tuning. All of those things plus the exchange with Iran, a little bit of geopolitical risk – they’re all curve steepeners.”
Related: Fixed-Income ETF Launches with Unique Value Screener
Corporate Bond ETFs Down Slightly
The spike in Japan and U.S. debt yields took a slight hit on some corporate bond ETFs like Vanguard Short-Term Corporate Bond ETF (NASDAQ: VCSH), SPDR Portfolio Short Term Corp Bd ETF (NYSEArca: SPSB) and SPDR Blmbg BarclaysST HY Bd ETF (NYSEArca: SJNK). VCSH was down slightly at 0.03$, SPSB was down 0.08% and SJNK was down 0.02%.
Federal Reserve Chairman Jerome Powell met with Congress last week to give his semiannual, hinting at more interest rate spikes to come to accompany current economic growth. As such, Collin Martin, director of fixed income for Charles Schwab’s Schwab Center for Financial Research, said it’s best to keep focused on short-term bonds similar to the aforementioned.
“For now, I still think investors should focus on short-term fixed income. I don’t think the risk/reward makes much sense to extend the duration,” said Martin. “For now, shorter-term investments are offering higher yields, but in case yields do rise, I’m telling clients to get closer to the point where it makes sense to start extending duration.”
For more trends in fixed income, visit the Fixed Income Channel.