The December issue of our Bond Fund Intelligence, which will be sent to subscribers Thursday morning, features the stories, "Bond Funds See Huge Rally, But Short-Term Sees Outflows," which cites commentary on the recent bond market surge and "NY Fed Blogs on Bond Funds Following SVB Collapse; ICI," which explains how bond funds were affected by the market turmoil this past March. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns fell in November 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 See Huge Rally" piece states, "After a brutal 2022 and a rough year-to-date in 2023, bond funds had their best month in history in November (at least since the launch of our Bond Fund Intelligence in 2015). Returns surged by 3.43% on average during the month, pushing 1-year returns solidly into the black for all categories of funds. But while markets have gone out of their mind for bonds of all stripes, investors still aren't showing much love to the short-term and ultra-short segments."
It continues: "Barron's article, 'Bonds Just Had Their Best Rally Since the 1980s. The Music’s About to Stop,' summarizes the huge about-face, saying, 'What a difference a month can make. Barron's Oct. 30 cover story declared flatly that it was 'Time to Buy Bonds' after a brutal decline in prices of fixed-income securities as the yield on the benchmark 10-year Treasury note touched 5%, nearly a two-decade high.'"
Our "NY Fed Blogs on Bond Funds" article states, "The Federal Reserve Bank of New York's 'Liberty Street Economics' features a piece entitled, 'Bond Funds in the Aftermath of SVB's Collapse.' They write, 'March 2023 will rightfully be remembered as a period of major turmoil for the U.S. banking industry. In this post, we go beyond banks to analyze how fixed-income, open-end funds (bond funds) fared in the days after the start of the banking crisis. We find that bond funds experienced net outflows each day for almost three weeks after the run on Silicon Valley Bank (SVB), and that these outflows were experienced diffusely across the entire segment. Our preliminary evidence suggests that the outflows from bond funds may have been an unintended consequence of the exceptional measures taken to strengthen the balance sheet of banks during this time.'"
It states: "The paper continues, 'The events of March 10, starting with the run on SVB's deposits and ending with SVB's failure and takeover by the FDIC, led to widespread turmoil in the banking industry. In response to the crisis, authorities acted swiftly by establishing the Bank Term Funding Program (BTFP) on Sunday, March 12, a measure that was designed to stave off further runs by bank depositors.'"
Our first News brief, "Returns Spike, Yields Fall in Nov.," states, "Bond fund returns had a huge monthly jump while yields fell last month. Our BFI Total Index increased 3.43% over 1-month and 3.78% over 12 months. The BFI 100 rose 3.67% in Nov. and 3.17% over 1-year. Our BFI Conservative Ultra-Short Index was up 0.81% over 1-month and 5.34% for 1-year; Ultra-Shorts rose 0.81% and 5.50%. Short-Term rose 1.59% and 4.33%, and Intm-Term increased 4.01% in Nov. and 1.74% over 1-year. BFI's Long-Term Index rose 5.41% and 1.60%. High Yield jumped 3.37% in Nov. and is up 7.62% over 1-yr."
A second News brief, "WSJ's 'A New Era of Income Investing Is Turning Boomers Into Bond Buyers' explains, 'The recent surge in interest rates that sent bond yields near a 15-year high is the ‘single best economic and financial development in 20 years' for retirees, said Joe Davis, global chief economist at Vanguard. That shift is turning the stock-loving Woodstock generation into bond buyers. With current yields on 10-year U.S. Treasury notes at 4.23%, boomers, ages 59 to 77, have reason to move money into the more conservative investments. The Gen Xers behind them -- now around ages 43 to 58 -- are eyeing those moves, too. This moment presents new opportunities for investors in or near retirement to use bonds to reduce risk and generate steady income, financial advisers say.'"
Our next News brief, "John Hancock Bond Fund Turns 50," says, "A press release entitled, 'John Hancock Investment Management celebrates 50-year anniversary of Bond Fund,' explains, 'John Hancock Investment Management, a company of Manulife Investment Management, announced ... that John Hancock Bond Fund (JHBIX) has celebrated its 50-year anniversary.'"
A BFI sidebar, "Vanguard Core-Plus Bond ETF," says, "Barron's published, 'Vanguard Is Launching a New Bond Fund. It's Part of a Bigger Bet on Active ETFs.' It tells us, 'Vanguard is pushing deeper into active management with the launch today of its second active bond exchange-traded fund. A third will follow later this month. It's the latest sign of the growing popularity of ETFs as an alternative to mutual funds, where active managers have long held sway. It isn't hard to see why: Active bond ETFs offer investors access to pros who can pick investments across a universe of 65,000 fixed-income securities—and with a lower price tag.'"
Finally, another sidebar, "Barron's: High Rates to Stay," comments, "Barron's writes, 'Higher Interest Rates Are Here to Stay. What It Means for the Economy.' The article tell us, 'As Federal Reserve officials head into their final policy meeting of the year, on Dec. 12-13, both Wall Street and Main Street are fixated on the outlook for interest rates. With inflation falling steadily, how soon—and how aggressively—will the U.S. central bank cut rates in the coming year? ... The probable answer: below today's target range of 5.25%-5.50%, but higher than many economists and policy makers expected a year or two ago, and far higher than the near-zero rates of the past 15 years.'"
