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Tuesday, June 9, 2015

"Bond Market Massacre"

It is not hard to find headlines like this one all through the financial media highlighting the major selloff in "the bond market" over the past 2 weeks. As one article notes(June 4)

Yields on Global bond hit 2015 highs today, extending a selloff in government bond after a wave of upbeat economic data highlighted the valuation concerns that have nagged investors for months. Global major bond yields rose by 25 to 50 bps in last one month. Investors will be tempted to sell safe assets such as bonds and buy riskier assets as the economy recovers.

But it is a misnomer to indiscriminately write about a selloff in the bond market. Like most short term moves regardless if they are the beginning of a long term trend they reflect which positions are most vulnerable to particular risk factors. Or as the saying goes "when the tide goes out you see who is naked). In this particular case it is interest rates rising. And the most vulnearble parts of the bond market are intermediate and long term US bonds and developed and emerging market international bonds.

Here is a graph of a set of those type of bond ETFs for the last 3 months

But it is also to see which sectors of the bond market are less vulnerable: short term bonds in the US: corporate investment grade , government and high yield.

Here are some ETFs in that part of the bond market.

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