Last year’s widespread bull market in all corners of fixed income has given way to a bifurcated trend profile. Treasuries and investment-grade corporates are posting losses year to date through yesterday’s close (Feb. 16), based on a set of exchange traded funds. By contrast, a motely crew of junk bonds, bank loans, short-term inflation-indexed Treasuries and floating-rate bonds are enjoying gains so far in 2021.
The key variable that’s driving these results: rising interest rates. The reflation trade continues to post strong upside momentum. Consider the benchmark 10-year Treasury yield. After bottoming last August, this rate has been trending higher, jumping to 1.30% yesterday – close to a one-year high. That’s still low by historical standards, but the change in directional bias is conspicuous and is now on everyone’s radar.
Higher rates generally translate into lower prices for bonds, but that’s not uniformly true for some corners of fixed income, at least not for the current year-to-date scorecard. The year-to-date winner at the moment: short-term junk bonds via SPDR® Bloomberg Barclays (LON:BARC) Short Term High Yield Bond ETF (NYSE:SJNK), which is ahead by 1.3% this year.
By contrast, long Treasuries have been crushed so far this year. Indeed, the deepest shade of red
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