Thanks to the flattening of the yield curve, US Treasury Steepener ETN (STPP) turned out as an acute loser in this space. The product tracks the returns of a notional investment in a weighted “long” position in relation to 2-year Treasury futures contracts and a weighted “short” position in relation to 10-year Treasury futures contracts. Bullish stance on 2-year Treasury made the product a loser. The product was down 18%.
Apart from this, junk bond ETFs like Peritus High Yield ETF (HYLD) lost about 13% as returns were great in the safe government bonds space. Needless to say, short-term bond ETFs like S&P/Citi 1-3 Yr Intl Treasury Bond ETF (ISHG) were defeated in the race. The fund is down 10% this year. The fate was similar for WisdomTree Barclays U.S. Aggregate Bond Negative Duration Fund (AGND) with a loss of about 8.5%.
Having presented the scorecard of the year, we would like to note that the trend will be quite similar in the year ahead. However, like 2014, TIPS ETFs should be out of the betting list courtesy of a tepid inflationary outlook across the globe.
Apart from the long-term government bonds, investors having a stomach for risk can also have a look at the long-term investment grade corporate bond ETFs to earn some regular income along with securing the portfolio. To do so, investors might tap Long-Term Corporate Bond Index Fund (VCLT), SPDR Barclays Capital Long Term Corporate Bond ETF (LWC) and iShares 10+ Year Credit Bond ETF (CLY).
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