Weekly Update: Bond Investments Struggle
Welcome to the weekly market update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this week.
This week, the stock market might have broken the nearly 3-month downtrend beginning in January. While the rally off the bottom has been fairly strong, volatility remains high and its unclear if we have in fact seen a bottom in this bear market.
In the news this week, Ukraine pushes back against Russia as NATO meets in Brussels to discuss the conflict. One of the side-effects of the war in Ukraine is surging fertilizer and crop prices. As Ukraine and Russia are large suppliers of fertilizer and grain, the ongoing conflict stands to disrupt the global food supply chain. And the Fed continues to plot a path to higher interest rates, battling ongoing inflation in the US economy.
On that note, bond investments are typically a ballast against stock market volatility. As investors flee stock investments, they typically find refuge in bonds with predictable cash flows and yields. That is not the case this year, however. Shown here in blue is the US Aggregate Bond Index or the AGG. This is a composite of many different types of bonds issued here in the US. As volatility picked up at the beginning of the year, the AGG has actually been in a simultaneous decline as well and is currently down about 6% on the year.
Drilling down further, the corporate bond index LQD, shown in red, is down even further at around 9.5%. The combination of falling bond prices and expanding credit spreads caused a more exacerbated decline.
Even long-term treasury bonds, the quintessential safe haven investment, is down 11% on the year. Rising interest rates and inflation have really plagued bond investors for the majority of the first quarter of 2022.
As a comparison, the S&P 500 is down 7% on the year. While the stock market certainly bounces around a lot more than the bond indexes, the S&P has done better than many different types of bonds despite the heavy stock volatility seen throughout the year, especially long-dated bonds.
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1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved March 24, 2022, from FactSet Database.
2.FactSet Research Systems. (n.d.). iShares US Aggregate ETF AGG (Interactive Charts). Retrieved March 22, 2022, from FactSet Database.
3.FactSet Research Systems. (n.d.). iShares Investment Grade Corporate Bond ETF LQD (Interactive Charts). Retrieved March 22, 2022, from FactSet Database.
4.FactSet Research Systems. (n.d.). iShares 20+ Year Treasury Bond ETF TLT (Interactive Charts). Retrieved March 22, 2022, from FactSet Database.
5.FactSet Research Systems. (n.d.). iShares US Aggregate ETF TLT & S&P 500 ETF SPY (Interactive Charts). Retrieved March 22, 2022, from FactSet Database.
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