Bond Investing in 2013
Investors have been fleeing bonds and loving Japan, but that doesn't mean it will lastJul 2, 2013, 8:44 am EDT | By David Fabian, Fabian Capital Management
The first half of 2013 has been quite a ride — in both the stock and bond markets — and fund flows have been largely accurate in depicting the best and worst performing asset classes.
The biggest story by far has been the recent unprecedented rise in interest rates, which sent bond prices tumbling from April highs. TrimTabs reported an estimated $80 billion was yanked from bond ETFs and mutual funds in the month of June alone. That number dwarfs the $42 billion in bond fund redemptions that occurred in October 2008 during the collapse of Lehman Brothers.
It also signals that investors are becoming increasingly skittish with the prospect of tapering from the Federal Reserve. The result: risk aversion, especially in options such as the iShares TIPS Bond Fund (TIP) and the iShares Investment Grade Corporate Bond Fund (LQD). According to Index Universe, these funds have experienced over $9 billion in outflows since the beginning of the year — redemptions due in large part to the interest rate sensitivity of the underlying bonds in these ETFs.
Conversely, the same fund flow data confirms that bond ETFs with lower average durations and less sensitivity to interest rates have gained assets. The PowerShares Senior Loan Portfolio (BKLN) and Vanguard Short Term Bond ETF