A coronavirus outbreak in Wuhan, China that has already killed four people is starting to permeate its way into the capital markets, especially safe haven Treasury bonds as prices rose and yields fell. The benchmark 10-year Treasury note fell four basis points to reach 1.78% while the 30-year yield fell to 2.32%.
In addition, credit ratings company Moody’s downgraded Hong Kong debt amid the social unrest occurring in the region.
“The Treasury market benefited overnight from coronavirus concerns as well as Moody’s downgrade of Hong Kong’s long term debt rating,” said Ian Lyngen, BMO’s head of U.S. rates.
In times of low yields like today’s bond landscape, it can help to tilt your allocation towards fixed income exchange-traded funds like the iShares 20+ Year Treasury Bond ETF (NasdaqGS: TLT).
As for the fund itself, TLT seeks to track the investment results of the ICE U.S. Treasury 20+ Year Bond Index (the “underlying index”). The underlying index measures the performance of public obligations of the U.S. Treasury that have a remaining maturity greater than or equal to twenty years.
Advantages of adding TLT to your portfolio:
- Exposure to long-term U.S. Treasury bonds
- Targeted access to a specific segment of the U.S. Treasury market
- Use to customize your exposure to Treasuries
The fund carries a paltry expense ratio of just 0.18%, the fund has been returning 17.48% within the past year, according to Yahoo Finance performance numbers. Year-to-date, the fund has returned 1.36%.
Core Bond Exposure
ETF investors looking to allocate capital towards investment-grade debt can look at the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG).
Fund facts:
- 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 at lows thanks to the central bank cutting interest rates last year, 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.
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