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Market Extra: Major bond ETFs on pace for worst first half to a year on record


Carnage in bonds this year has put billions worth of fixed-income exchange-traded funds on pace to post their worst first half to a year on record, according to Dow Jones Market Data.

bonds and more sectors have been hit hard in 2022 as the Federal Reserve has moved to dramatically raise interest rates and tighten financial conditions to fight inflation at a 40-year high.

The historic repricing of financial assets has hurt major fixed-income exchange-traded funds, or ETFs, an increasingly popular way for individuals and institutional investors to gain exposure to industries, sectors, commodities, currencies and other corners of financial markets in the past two decades.

Here’s a snapshot of the negative total return performance of major fixed-income ETFs in the past six months:

-11.6% for the $81 billion iShares Core U.S. Aggregate Bond ETF AGG

-10.8% for the $30.5 billion iShares TIPS Bond ETF

-13.8% for $13.3 billion iShares iBoxx $ High Yield Corporate Bond ETF

-24.4% for the $19.7 billion iShares 20+ Year Treasury Bond ETF

-17.3% for the $30.4 billion iShares iBoxx $ Investment Grade Corporate Bond ETF

-12.2% for the $19.1 billion iShares 7-10 Year Treasury Bond ETF

-3.4% for the $25.5 billion iShares 1-3 Year Treasury Bond ETF

If those levels hold through June 30, it will be their worst first half to a year on record, according to Dow Jones Market Data.

Shares of ETFs, like stocks, trade in a flash, which can make them one of the first sectors to experience selling in volatile markets, as investors look to quickly raise cash for liquidity.

While most of the above-listed funds track Treasury debt, two hold exposure to corporate bonds, which have been under pressure from rates volatility. Last week, investment-grade corporate bond ETFs and related funds booked their largest weekly outflows of 2022.

See also: Why high-yield ETF outflows made this Jefferies strategist ‘a little nervous’

The sharp rise — and retreat — in recent weeks of Treasury yields has come as concerns grow over the potential for a slowdown or U.S. recession, which could spell trouble for companies, households and the economy.

See: Citigroup cuts S&P 500 target to reflect blend of recession, ‘soft landing’ scenarios

The 10-year Treasury rate

was at 3.193% on Monday, off the year’s high of 3.482% touched in mid-June, but above its low of 1.628% in January, according to Dow Jones Market Data.

Central bankers frequently expressed concerns about America’s pile of corporate debt before the pandemic, which led to another borrowing boom. Corporate bond ETFs can trade instantly, but can contain exposure to less liquid bonds, particularly in times of market stress.

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