A sustained flight to safety via bonds is persisting as coronavirus fears continue to roil the capital markets. As more data regarding the virus comes out of China and other parts of the world afflicted by the disease, this move is likely to continue until the effects of the virus start to tangibly dwindle.
Yields continue to head downward with the 30-year Treasury note dropping below 2%.
Per a CNBC report, the “yield on the benchmark 10-year Treasury note, which moves inversely to price, dropped four basis points to around 1.544%, while the yield on the 30-year Treasury bond was also lower at around 1.992%. The 10-year Treasury yield also dipped below 3-month rate, sending a recession signal.”
“Bonds are leading the charge because, unlike stocks (which can follow flights of fancy and present day performance), bonds are tasked with adjusting for future economic changes,” wrote Matthew Graham in Mortgage News Daily. “Even though coronavirus and COVID-19 won’t spell the end of the human race, bonds know they’ll have a measurable economic impact. Much of the resilience we’re witnessing is the simple accounting for that impact. At the start of the current week, it means 10yr yields are challenging the most recent consolidation range, potentially sending a signal that rates will be willing to spend more time near multi-year lows than previously thought.”
Getting Core Bond Exposure Via Investment-Grade Debt
For investors looking to get quality core bond exposure via investment-grade debt, the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG) has been the go-to fund for 20 years.
- AGG seeks to track the investment results of the Bloomberg Barclays U.S. Aggregate Bond Index.
- The index measures the performance of the total U.S. investment-grade bond market.
- The fund generally invests at least 90% of its net assets in component securities of its underlying index and in investments that have economic characteristics that are substantially identical to the economic characteristics of the component securities of its underlying index.
Reasons to use AGG:
- Broad exposure to U.S. investment-grade bonds
- A low-cost easy way to diversify a portfolio using fixed income
- Use at the core of your portfolio to seek stability and pursue income
With Treasury yields near lows thanks to the central bank cutting interest rates three consecutive times in 2019 and holding steady at its most recent interest rate policy decision in 2020, AGG might not be the best option for yield-started investors. However, for those looking for overall bond exposure–say, for a 60-40 capital allocation strategy, using an ETF like AGG would help especially given the amount of investment-grade debt issues it holds.
For more market trends, visit ETF Trends.