US Bond Returns Vary Dramatically So Far In 2020

The upheaval in global financial markets this year is unleashing profound effects on US fixed-income assets—negative and positive. Depending on the slice of the bond market, year-to-date results vary from strong gains to deep losses, based on a set of exchange-traded funds.

The top performer remains long-term Treasuries. The iShares 20+ Year Treasury Bond (TLT) surged 13.3% this year through Tuesday’s close (Mar. 17). The year-to-date gain masks high volatility in recent days as the fund swings up and down, but for now TLT still holds the top performance spot for the major sectors of the US bond market in 2020.

Notably, all the year-to-date gains for US bonds is currently limited to Treasuries of various maturities, with one exception: inflation-indexed securities. Treasuries that are linked to inflation are underwater on a year-to-date basis.

The hardest-hit corner of the bond market: junk bonds. SPDR Bloomberg Barclays High Yield Bond (JNK) has lost 13.3% so far this year—the deepest shade of red in the US fixed-income realm.

Weakness in the corporate space generally this year is weighing on the US investment-grade benchmark, which holds government and corporate credits. A fund proxy for this broad measure of the market is Vanguard Total Bond Market (BND), which is down 0.8% year to date.

The challenge for lesser-rated slices of corporate fixed income is a rising risk of defaults. “The level of concern is pretty obviously elevated here,” says Oleg Melentyev, head of high-yield strategy at Bank of America Global Research. “We have seen quite a dramatic widening in different measures of spread and in different segments of the market,” he told CNBC last week.

The usual guidance on pricing via economic data has effectively gone dark in recent days as investors realize that a US recession is highly likely. Since economic reports reflect activity with a lag, the incoming numbers are effectively worthless until the coronavirus blowback begins to inform the updates in the weeks ahead.

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