WIP - Last Week's Upside Outlier: U.S. Inflation-Linked Treasuries
Summary
- US government bonds offering inflation hedging provided the only positive return for the major asset classes in last week’s trading through Oct. 14, based on a set of proxy ETFs.
- Investors are also eyeing the recent rebound in inflation-adjusted yields offered in this corner of the Treasuries market.
- Looking at the major asset classes through a drawdown lens shows that all markets are posting relatively steep declines vs. previous peaks.
US government bonds offering inflation hedging provided the only positive return for the major asset classes in last week's trading through Friday, Oct. 14, based on a set of proxy ETFs.
The iShares TIPS Bond ETF ( TIP ) rose 0.2%, marking the second weekly advance for the fund. Although the fund has lost ground this year, the 13.3% loss is relatively modest vs. the US stock market's 23.8% haircut so far in 2022. TIP's year-to-date slide also compares favorably against US bonds overall, based on the 15.8% year-to-date decline for Vanguard Total Bond Market Index Fund ( BND ).
Investors are also eyeing the recent rebound in inflation-adjusted yields offered in this corner of the Treasuries market. After an extended run of negative real yields, the payout rate for a 5-year inflation-indexed Treasury note, for instance, has surged recently and is currently at 1.81%, the highest since 2009. Investors who buy and hold the 5-year TIPS bond will lock in the relatively elevated real yield.
The rest of the major asset classes lost ground last week. The biggest setback: stocks in emerging markets via Vanguard Emerging Markets Stock Index Fund ( VWO ), which lost a hefty 4.0%. VWO ended the week near its lowest close in 2-1/2 years.
Broad based declines took a bite out of the Global Market Index (GMI.F), an unmanaged benchmark, maintained by CapitalSpectator.com. This index 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 overall. GMI.F fell 1.6% last week, the fourth weekly loss in the past five.
For the one-year change, a broad measure of commodities ((GCC)) is still the only slice of the major asset classes posting a gain. GCC is up a modest 3.0% over the past year, in sharp contrast with losses for the rest of the field.
GMI.F is down 22.2% for the past year.
Looking at the major asset classes through a drawdown lens shows that all markets are posting relatively steep declines vs. previous peaks. The softest drawdown at the moment: inflation-indexed Treasuries ((TIP)), which closed with a 13.7% drawdown. At the other extreme: foreign corporate bonds ( PICB ) are nursing a roughly 37% slide from the previous peak. GMI.F's drawdown: -25% (green line in chart below).
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Last Week's Upside Outlier: U.S. Inflation-Linked Treasuries