ETF Folly: Just When You Thought Bond Yields Would Skyrocket

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Bond yields have risen over the past month or two, and many investors expected those yields to keep rising. That was before Monday. The latest European debacle in Cyprus wanting to steal depositor funds to pay for their euro-bailout has brought in significant support for bonds in the United States all over again. The U.S. has been considered the “flight to safety” trade for more than a generation.

We have witnessed a real recovery for Treasury prices, sending the yields lower. The 10-Year Treasury note is yielding 1.95% today, down from about 1.99% on Monday and down from 2.06% last week. The 30-year Treasury long bond has not seen its yield come in as much, but it is down. The long bond’s yield of 3.20% compares to 3.22% on Monday and about 3.27% last week. This has yet again driven up the demand and price for bond exchange traded funds (ETFs) as investors seek safety outside of Europe.

The Vanguard Total Bond Market ETF (NYSEMKT: BND) is up 12 cents to $83.49, versus a low price of $83.02 just last Monday. Its yield screens out at almost 2.7%, and it tracks the Barclays Capital U.S. Aggregate Float Adjusted Index.

iShares Barclays 20+ Year Treasury Bond (NYSEMKT: TLT) is even more liquid, and it is up 0.56 at $117.20. That is higher than the low price of $114.75 back on March 8. It yields about 2.72%, but we would caution that this would have to rise more than 10% in price before hitting a 52-week high.

iShares iBoxx Investment Grade Corporate Bond (NYSEMKT: LQD) ETF tracks the “investment grade corporate bond market” via the Markit iBoxx USD Liquid Investment Grade Index. It is up $0.24 to $119.73 and yields 3.8%. The low close here was $118.78, back on March 8.

iShares iBoxx High Yield Corporate Bond (NYSEMKT: HYG) ETF tracks the junk bond market and yields a much higher 6.57%. This one took a hit on Monday due to junk bonds having “risk asset” characteristics, but now it is back to being within a half percent of its 52-week high.

Note that there has been a significant volume spike in the WisdomTree Europe Hedged Equity (NYSEMKT: HEDJ) ETF, but this is usually too thin to track for us. Average volume is not quite 16,000 shares, but this has traded more than 2 million shares alone today. The price is down $0.18 at $50.47, and this represents some $100 million worth of a transaction. Investors can track the WisdomTree DEFA International Hedged Equity Index to see its return.

One interesting take is that the iShares S&P National AMT-Free Muni Bond (NYSEMKT: MUB) ETF has not seen demand increase, as it has been a hard month for municipal bonds. Shares are down four cents at $109.77 so far on Tuesday, and the price is even lower than it was on Friday. Its yield is 2.83%.

Even the CurrencyShares Euro Trust (NYSEMKT: FXE) exchange traded product is putting in yet another low as the euro hit a low not seen since late in 2012. That is down $0.45 at $127.80, versus a close of $129.54 last Friday.

Cyprus is insignificant to the world, but the implications of the eurozone pushing for a nation to steal money from bank depositors has many ugly possibilities. The flight to safety trade still remains. At some point we will all get to worry again about what is happening here rather than in tiny island nations that have little relevance as far as the broad global economy is concerned.