The November issue of our Bond Fund Intelligence, which was sent to subscribers Tuesday morning, features the stories, "After Bad October, Bond Funds Bounce Back Big in November," which reviews the case for a bond market rebound and "Feeding Frenzy on iShares 20+ Year Treasury Bond ETF," which quotes from recent news coverage on flows into TLT. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns fell in October while yields rose again. We excerpt from the new issue below. (Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.)
Our "Bond Funds Bounce" piece states, "Bond fund assets declined by $55.8 billion in October, but have no doubt already recovered much of this loss in the first 13 days of November. The speed of U-turn has been impressive, but the volatility in bond fund flows and returns continues to grow. But the debate continues on whether the recent rebound is real, or whether bonds’ latest upturn is merely a dead-cat bounce."
It continues: "Barron's writes 'After the Fall: It's Time to Buy Bonds,' which says, 'They tell us, 'Rarely in American history has it been this bad for bonds -- and rarely has it been such an opportune time to buy. The bond rout has been brutal.... Treasuries are on track to lose money for three consecutive years, declining 42% over that period. Other bonds, whether mortgage-backed securities or high-quality corporates, have also taken a beating, leaving investors with losses from what are supposed to provide ballast in a portfolio. But consider what may come next: the end of the bond bear market.'"
Our "iShares" article states, "The manic-depressive, meme-stock momentum mindset appears to have moved to the bond fund space. Traders pushed yields up, then down at a breakneck pace the past month, which is most evidenced by the returns in, and the press coverage on, the iShares 20+ Year Treasury Bond ETF, or TLT."
It states: "A `Wall Street Journal piece, 'Hard-Hit Treasury-Bond Fund Draws Buy-the-Dip Investors' tells us, 'One of the hottest investments on Wall Street is something of a surprise -- it's a battered long-dated Treasury bond fund. Shares of the iShares 20+ Year Treasury Bond ETF are near a 16-year low and have lost more than half their value from their 2020 peak, but investors are piling in.'"
Our first News brief, "Returns Fall, Yields Up Again in Oct.," states, "Bond fund returns fell and yields rose again last month. Our BFI Total Index decreased 0.59% over 1-month but is up 3.01% over 12 months. The BFI 100 fell 0.98% in Oct. but rose 2.12% over 1-year. Our BFI Conservative Ultra-Short Index was up 0.36% over 1-month and is up 5.05% for 1-year; Ultra-Shorts rose 0.37% and are up 5.37% over 12 mos. Short-Term rose 0.11% and rose 3.86%, and Intm-Term decreased 1.16% and rose 0.86% over 1-year. BFI's Long-Term Index fell 1.81% and rose 0.62%. High Yield fell 0.54% in Oct. but is up 6.14% over 1-yr."
A second News brief, "WSJ on 'Bonds vs. Bond Funds: How Higher Rates Are Changing the Calculation.' The brief asks, 'Is it better for ordinary investors to buy individual bonds outright? Or shares of bond mutual funds? During the yearslong period of near-zero interest rates, the answer seemed simple: Funds had low fees and were easy to buy and sell, and share values rose alongside bond prices. If any one bond defaulted, losses were minimal. The historic declines suffered by major bond funds last year highlighted the risks of that approach.'"
Our next News brief, "Reuters: 'Bond Fund Managers Head for Third Year of Losses.' They write, 'Many of the world's biggest bond funds are facing their third straight year of losses for the first time in roughly 40 years, as a relentless U.S. economy sends bond yields to their highest levels in more than a decade. Yet far from being put off, investors are loading up on bonds again in 2023 after bailing out of the market last year, drawn in by the same run-up in yields that has caused so much pain.'"
A BFI sidebar, "More Vanguard Muni ETFs," says, "A release, 'Vanguard to Expand Municipal Bond ETF Lineup,' tells us, 'Vanguard today announced plans to launch Vanguard Intermediate-Term Tax-Exempt Bond ETF (VTEI) and Vanguard California Tax-Exempt Bond ETF (VTEC), two index municipal bond ETFs. The ETFs will be managed by Vanguard’s Fixed Income Group, which has overseen municipal bond portfolios for more than 40 years.'"
Finally, another sidebar, "Morningstar on Short BFs," comments, "Morningstar's '5 Short-Term Bond Funds That Consistently Deliver' tells us, 'As 2023 winds down and stubbornly high bond yields remain, so does the allure of short-term fixed-income funds. The Federal Reserve has raised short-term interest rates by 100 basis points so far in 2023 on top of 2022′s unprecedented hikes. As high inflation and economic uncertainty persist, investors may seek refuge in shorter-term bond funds to await a clearer path forward or look to enhance liquidity returns for cash not immediately needed.'"
