Market volatility could be pushing traders back into bonds again. After a 75-basis point rate hike, an aggressive U.S. Federal Reserve could be pushing rates to the point where it could hamper growth.
As such, a deluge of safe haven capital could be flowing into bonds. Talks of a recession are already swirling in the capital markets, forcing traders to re-think bonds after the debt market has been following the stock market downward for the first half of 2022.
“The market turbulence comes as economists warn that the world economy is at risk of slipping into a recession as central banks remain on course to deliver aggressive hiking cycles despite the risks to growth,” Yahoo! Finance reported.
Yields have been spiking this year, which bodes well for fixed income investors. However, the tables could be turning and bond prices could reverse course if investors pile back into the safety of bonds.
“The market is focusing on recession risks for now, with oil falling, yields lower, risk assets getting hurt,” said Peter McCallum, rates strategist at Mizuho International Plc.
Getting Broad, Diverse Bond Exposure
Investors ready to get bond exposure again can consider exchange traded funds (ETFs) that offer broad, diversified exposure. One such fund from Vanguard to consider is the Vanguard Total Bond Market Index Fund ETF Shares (BND ).
BND seeks the performance of the Bloomberg U.S. Aggregate Float Adjusted Index, which represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.
As mentioned, bond investors can use BND as a traditional hedging component when the equities market goes awry. Short-term traders can also use the ETF given its dynamic ability to be bought and sold quickly in the open market.
For more news, information, and strategy, visit the Fixed Income Channel.