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Bond ETFs Strengthen on Growth Concerns

Bond exchange traded funds strengthened Thursday as the equity markets retreated on concerns over the economic recovery and the Covid-19 delta variant gaining traction.

“Markets are having a bad morning, but this is normal and even healthy given the recent strong run,” Brad McMillan, chief investment officer at Commonwealth Financial Network, told Reuters. “This looks like a short-term reaction to recent concerns about the Delta variant more than anything else.”

Some market observers are also growing concerned over ongoing labor shortages and supply chain bottlenecks that may be weighing on the pace of the economic recovery.

“There is a bit of a recognition that things aren’t looking as economically positive as they were in mid-June when everything seemed to be hitting that Goldilocks middle ground,” Edward Park, chief investment officer at Brooks Macdonald, told the Wall Street Journal. “Delta, or the next Delta, will be a recurring risk in markets.”

Global investors turned risk off and dumped equities while bond prices rallied and yields on benchmark 10-year Treasuries dipped for a fourth day to around 1.25%.

“This decline in bond yields could be signaling that the inflation burst is transitory, and/or that the Delta variant will slow growth, although at 1.25% this morning that seems extreme,” Ed Hyman, founder and chairman of Evercore ISI and head of economic research, said in a note, according to CNBC.

Investors who are looking to strengthen their fixed income strategies can consider the Avantis Core Fixed Income ETF (AVIG), which invests in a broad set of debt obligations across sectors, maturities, and issuers. AVIG pursues the benefits associated with indexing, such as diversification and transparency of exposures. Yet the fund also has the ability to add value by making investment decisions using information embedded in current yields.

The Avantis Short-Term Fixed Income ETF (AVSF) also invests primarily in investment-grade quality debt obligations from a diverse group of U.S. and non-U.S. issuers with a shorter maturity.

Additionally, the actively managed American Century Diversified Corporate Bond ETF (NYSEArca: KORP) invests in U.S. dollar-denominated corporate debt securities issued by U.S. and foreign entities, but may also hold securities issued by supranational entities. Up to 35% of the fund’s net assets may be invested in high-yield securities or junk bonds. The fund may also invest in derivative instruments such as futures contracts and swap agreements. The weighted average duration of the fund’s portfolio is expected to be between three and seven years.

For more news, information, and strategy, visit the Core Strategies Channel.

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