Corporate Bonds Ex-US Led Market Gainers Last Week

Bonds issued by companies outside the US rose for a fifth straight week, securing the strongest performance for the major asset classes, based on a set of ETFs in last week’s trading.

Invesco International Corporate Bond (PICB) rose 1.2% in the holiday-shortened trading week through Thursday, Apr. 6. The gain lifted the fund to a 4.7% year-to-date advance.

Despite the recent strength, PICB is still struggling to break above its recent highs. But as the allure of bonds revives, thanks to speculation that the interest-rate-hiking cycle is ending, a rally above current levels would signal more gains ahead.

Foreign real estate shares (VNQI) and US bonds (BND) also posted relatively strong gains last week. By contrast, US stocks (VTI) and US real estate investment trusts (VNQ) retreated — the latter was the biggest loser last week.

Falling earnings are expected to be a headwind for stocks in the near term, analysts predict. “From a corporate earnings perspective, we’re already in a recession,” says Eric Gordon, head of equities at Brown Advisory.

Meanwhile, the bond market will focus on this week’s release of US consumer inflation data for March (Wed., Apr. 12). “Headline inflation still continues to trend down, but progress on core inflation seems to be stalled,” says Alan Detmeister, senior economist and executive director at UBS. A solid decline in CPI would bolster the case for buying bonds to take advantage of relatively high yields and the prospect that interest rates have peaked.

The Global Market Index (GMI.F) was flat last week, holding steady after three weeks of gains. This unmanaged benchmark holds all the major asset classes (except cash) in market-value weights via ETFs and represents a competitive measure for multi-asset-class-portfolio strategies.

All the major asset classes continue to reflect losses for the trailing one-year return. The declines range from a slight 0.7% setback for government bonds issued by governments in emerging markets (EMLC) to steep 20%-plus losses for US and foreign property shares (VNQ and VNQI, respectively).

GMI.F’s has also fallen over the past year, posting a 7.0% loss.

Comparing the major asset classes through a drawdown lens continues to show relatively steep declines from previous peaks for markets around the world. The softest drawdown at the end of last week: US inflation-indexed Treasuries (TIP), which closed last week with an 8.7% peak-to-trough loss.

The steepest drawdown for the major asset classes at the moment: foreign property shares, which ended last week with a near-28% slide from its previous peak.

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By James Picerno