Latest news with #longtermbonds
Reuters
12 hours ago
- Business
- Reuters
Investors returned to US long-term bond funds in May
June 25 (Reuters) - U.S. long-term bond funds drew massive inflows in May, reversing April's drawdown and indicating investors sought the safety of higher-yielding debt, as they weighed a host of uncertainties around trade tariffs, inflation and fiscal deficits. According to Morningstar data, U.S. long-term bond funds attracted $7.4 billion in May, their largest monthly inflow in over two years, after facing sharp outflows in April. Jeana Doubell, fixed income analyst at Morningstar, said inflows into long-term bond funds in May reflect investor expectations of weaker growth and a view that bonds offered better value than other riskier assets. U.S. long-term bonds were sold off heavily in April on concerns that U.S. tariff measures could fuel inflation, while expectations that President Donald Trump's tax bill could inflate the deficit and Treasury supply added to the pressure. However, analysts said those concerns have eased as trade talks progress, rekindling appetite for long-term bonds. "Long-bond prices are susceptible to inflation, and recent data shows very little inflation above the Fed's 2% target," said Chris Gunster, head of fixed income at Fidelis Capital Partners. "As long as inflation is less of a concern, then long-dated Treasuries should reassert themselves as a hedge against equities and other risk asset declines." "The smart investors should already be locking in longer-term rates," he said. The Morningstar data showed short-term bond funds saw $5.8 billion in outflows after strong inflows the previous month, while intermediate-term bond funds attracted $4.2 billion. iShares 20+ Year Treasury Bond ETF led with inflows of $4.3 billion, while iShares 10-20 Year Treasury Bond ETF and iShares 7-10 Year Treasury Bond ETF received $1.2 billion and $625 million, respectively.
Yahoo
12 hours ago
- Business
- Yahoo
Investors returned to US long-term bond funds in May
By Patturaja Murugaboopathy (Reuters) -U.S. long-term bond funds drew massive inflows in May, reversing April's drawdown and indicating investors sought the safety of higher-yielding debt, as they weighed a host of uncertainties around trade tariffs, inflation and fiscal deficits. According to Morningstar data, U.S. long-term bond funds attracted $7.4 billion in May, their largest monthly inflow in over two years, after facing sharp outflows in April. Jeana Doubell, fixed income analyst at Morningstar, said inflows into long-term bond funds in May reflect investor expectations of weaker growth and a view that bonds offered better value than other riskier assets. U.S. long-term bonds were sold off heavily in April on concerns that U.S. tariff measures could fuel inflation, while expectations that President Donald Trump's tax bill could inflate the deficit and Treasury supply added to the pressure. However, analysts said those concerns have eased as trade talks progress, rekindling appetite for long-term bonds. "Long-bond prices are susceptible to inflation, and recent data shows very little inflation above the Fed's 2% target," said Chris Gunster, head of fixed income at Fidelis Capital Partners. "As long as inflation is less of a concern, then long-dated Treasuries should reassert themselves as a hedge against equities and other risk asset declines." "The smart investors should already be locking in longer-term rates," he said. The Morningstar data showed short-term bond funds saw $5.8 billion in outflows after strong inflows the previous month, while intermediate-term bond funds attracted $4.2 billion. iShares 20+ Year Treasury Bond ETF led with inflows of $4.3 billion, while iShares 10-20 Year Treasury Bond ETF and iShares 7-10 Year Treasury Bond ETF received $1.2 billion and $625 million, respectively. (Reporting By Patturaja Murugaboopathy; Editing by Vidya Ranganathan and Vijay Kishore) Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
12 hours ago
- Business
- Yahoo
Investors returned to US long-term bond funds in May
By Patturaja Murugaboopathy (Reuters) -U.S. long-term bond funds drew massive inflows in May, reversing April's drawdown and indicating investors sought the safety of higher-yielding debt, as they weighed a host of uncertainties around trade tariffs, inflation and fiscal deficits. According to Morningstar data, U.S. long-term bond funds attracted $7.4 billion in May, their largest monthly inflow in over two years, after facing sharp outflows in April. Jeana Doubell, fixed income analyst at Morningstar, said inflows into long-term bond funds in May reflect investor expectations of weaker growth and a view that bonds offered better value than other riskier assets. U.S. long-term bonds were sold off heavily in April on concerns that U.S. tariff measures could fuel inflation, while expectations that President Donald Trump's tax bill could inflate the deficit and Treasury supply added to the pressure. However, analysts said those concerns have eased as trade talks progress, rekindling appetite for long-term bonds. "Long-bond prices are susceptible to inflation, and recent data shows very little inflation above the Fed's 2% target," said Chris Gunster, head of fixed income at Fidelis Capital Partners. "As long as inflation is less of a concern, then long-dated Treasuries should reassert themselves as a hedge against equities and other risk asset declines." "The smart investors should already be locking in longer-term rates," he said. The Morningstar data showed short-term bond funds saw $5.8 billion in outflows after strong inflows the previous month, while intermediate-term bond funds attracted $4.2 billion. iShares 20+ Year Treasury Bond ETF led with inflows of $4.3 billion, while iShares 10-20 Year Treasury Bond ETF and iShares 7-10 Year Treasury Bond ETF received $1.2 billion and $625 million, respectively. (Reporting By Patturaja Murugaboopathy; Editing by Vidya Ranganathan and Vijay Kishore) Sign in to access your portfolio
Forbes
18-06-2025
- Business
- Forbes
Why Long-Term Bonds Are A Fit For These Investors Right Now
Bonds, especially long-term bonds, have taken headline hits recently. Last month it was the Moody's credit rating downgrade, recently it was President Trump's sweeping tax bill. Major outlets from Bloomberg to The New York Times have published stories that could lead many investors to steer away from long-term bonds. In my opinion, investors looking to maximize the income generated from their portfolios should consider longer-term bonds right now. In this case, I'm referring to 10-year bonds or longer. These bonds now offer attractive yield advantages over shorter-term bonds and can also help to increase portfolio diversification, potentially acting as a hedge against negative returns in equity markets. Investors should consider long-term bonds as part of their diversified investment portfolio. From the aftermath of the great financial crisis in 2008 through the end of the COVID-19 crisis in 2020, global interest rates were repressed by central bankers seeking to stimulate economies. This was good for risk assets such as equities, but not good for those investors who relied on the income generated from their bond portfolio. As an example of how far interest rates fell, the yield on the benchmark 10-year U.S. Treasury bond reached an all-time low of 0.65% in June 2020 during the peak of the pandemic. But as interest rates have risen, yields in many bond sectors are now well above their five-year averages and present an attractive investment opportunity. When weighing the relative value between short-term and long-term bonds, one must consider whether the additional yield is worth the additional risk. For a majority of the past five years, the yield differences between longer-term bonds and shorter-term bonds were negative—investors were not being compensated for taking on the additional maturity risk. But as the Federal Reserve began to increase policy rates to combat the post-pandemic rise in inflation, longer-term yields began to increase more than shorter-term bonds, 'steepening the yield curve.' The additional yield now offered by 'moving out on the curve' is the highest it has been since the summer of 2022. Using U.S Treasuries as an example, the additional yield pickup from a 2-year to a 10-year bond is 0.45%. For high-quality, tax-exempt municipal bonds and corporate bonds, the additional yield is higher at 0.67% and 0.79% for AA-rated municipal and corporate bonds, respectively. For those investors willing to take on more credit risk in A-rated and/or BBB-rated bonds, the additional yield is even higher. The current yield pickup for municipal bonds is notable as these yields are closer to the highs of the last five years than either Treasuries or corporate bonds. When markets faced significant disruptions in the past during the great financial crisis, the European sovereign debt crisis, COVID-19 and the Silicon Valley Bank collapse, long-dated bonds, and specifically U.S. Treasuries, performed well as investors sought the safety and security of the U.S. dollar and the U.S. Treasury market. During these crises, long-maturity Treasuries acted as a hedge against the negative returns in equity and other markets. However, when the Fed began to move interest rates higher during the 1970s oil crisis and after COVID-19, bond returns were negative, along with riskier assets. The hedging effectiveness of long-maturity Treasury bonds only works when the factors contributing to the dislocation are not caused by, or exacerbate, an increase in inflation. A crisis causing a slowdown in nominal growth will force central banks to reduce interest rates, and as a result, lower yields mean higher bond prices. However, a crisis causing inflation to rise may result in central banks increasing interest rates, causing bond prices to decline. Owning longer-term bonds increases interest rate risk. The price of a long-term bond is more susceptible to changes in interest rates than a short-term bond. If interest rates increase, then the price of a longer-term bond will decline more than the price of a shorter-term bond. The most significant risk in longer-term bonds is an unexpected increase in interest rates. The primary driver of higher interest rates is an acceleration in inflation or expected inflation. Despite the recent uncertainty around tariff implementation, market-derived inflation expectations have remained well contained. As of June 15, the 5-year inflation expectation derived from the TIPS (Treasury Inflation Protected Security) market was 2.3% and has been declining since its near-term peak of 2.7% in February. Essentially, expected inflation isn't so bad right now, which should offer some comfort to investors. With the recent rise in longer-term nominal interest rates over the last few months, combined with the decline in inflation expectations, the expected real yield on longer-term bonds has increased. The real yield is the net yield of a bond after accounting for expected inflation. For a 10-year Treasury, the real expected yield, as reflected in the current TIPS market, was 2.10% as of June 13, which is 0.60% more than that of the 2-year Treasury. The 10-year real yield is near its highs of the last 20 years. For those investors focused on maximizing income, investing in higher, longer-term yields can be an advantage should interest rates decline—investors in very short-term money market funds should take heed. By year-end, economists and market participants expect the Fed to reduce its policy rate by 0.50%. According to the Investment Company Institute, there is over $7.0 trillion currently invested in money market funds. The median money market fund yield is 4.38% as of April 30, according to the Office of Financial Research. Money market fund rates are highly correlated to the fed funds rate. If the fed funds rate is reduced by 0.50% by the end of the year, then one would expect the yield on money market funds to decline by at least that amount, pushing the median yield below 4%. In comparison, the current 10-year Treasury yield is 4.4% and the average 10-year AA-rated corporate bond yields 4.96%. The average 10-year AA-rated municipal bond yields 3.62%, which, adjusted for the maximum federal tax and surcharge, is a tax-equivalent yield of 6.11%. For investors who wish to maximize their after-tax income and are in a high income-tax bracket, municipal bonds offer very attractive tax-equivalent yields in comparison to Treasury or corporate bonds. For those investing in tax-deferred accounts or whose tax rate is considerably lower, the additional yield from corporate bonds over U.S. Treasuries looks attractive. As always, investors should consult with their tax advisor and investment professional before investing. Longer-maturity bonds can be implemented in portfolios by purchasing individual bonds, or specific ETFs or mutual funds that target long-maturity bonds. There are advantages and disadvantages to each. For investors with sufficient assets, I recommend owning individual bonds in a professionally managed portfolio. This allows for more customized implementation and reduces the risk of unplanned tax consequences that may occur in mutual funds. Implementation through mutual funds and ETFs can be useful for smaller investment amounts and those looking for a higher level of liquidity. Bond ETFs are traded throughout the day, while mutual funds are priced at the close of each day. Investors should not be afraid of investing in long-term bonds as part of a diversified portfolio. Current yield levels on both a nominal and real (after-tax) basis are appealing when compared to previous years. There are, however, risks to owning these bonds. An increase in yields due to inflation or other means can cause bond prices to decline. The longer the bond term, the more the price will be impacted. As part of a well-diversified portfolio, the inclusion of long bonds has the potential to increase investment income and returns.
Bloomberg
23-05-2025
- Business
- Bloomberg
Scared of Long Bonds? Get Used to Them
It is no wonder that so many long-term bond auctions are turning into nail-biters — not just in the US, but in Japan and Europe, too. After all, who'd buy long-term bonds? Long-term interest rates have become much less predictable, and that means volatile prices for long bonds. Even worse, the normal negative correlation between the bond and stock markets has become less of a sure thing. Nevertheless, to answer the question: Just about everyone should buy long-term bonds. They may be the best hedge in an increasingly uncertain environment.
