Global Fixed Income: Performance Review | 21 Jan 2014

Bonds have been widely scorned on the assumption that interest rates are set to rise for an extended period. Fair enough, but the world of fixed-income pulls in a lot of territory and so it’s a mistake to lump all corners of the planet’s bond markets into one lumpy blob.

Despite what you may have heard, there’s quite a lot of variation in the fixed-income markets. As an example, let’s review trailing 250-day performance (a proxy for 1-year return) across a set of bond ETFs. First up is the US view, followed by the round-up of foreign markets.

The big winner in the US is still the realm of junk bonds. The SPDR Barclays High Yield Bond ETF (JNK) boasts a total return of more than 5% for the past 250 days through Friday’s close. At the bottom end of the spectrum: the iShares 20+ Year Treasury Bond (TLT), with a haircut of nearly 10%.

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In foreign bond markets, high-yield securities are in the lead as well. The iShares Global ex-USD High Yield Corporate Bond (HYXU) ETF is up nearly 8% on a total-return basis over the past 250 trading days. By contrast, Market Vectors EM Local Currency Bond ETF (EMLC) has been pinched by 12% over that span—ouch!

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The main takeaway: the “bond market” isn’t a monolithic creature. Rather, it comes in a rainbow of risk and return possibilities that are worthy of close attention for designing and managing an asset allocation strategy. The usual suspects like to frame this market as in singular terms. Fortunately for investors, reality is considerbly more nuanced.

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