One aspect to the October drop in stocks is that there was no flight to Treasuries. The 10-year Treasury yield jumped from 3.05% on 9/28 to 3.15% by 10/31 and the 30-year Treasury jumped from 3.13% to 3.30% by 10/31, despite the hammering to Tech, Growth and the US stock market across the board.
On Bob Brinker’s Fixed-Income Advisory newsletter, Bob tracks 54-55 odd open-end no-load mutual funds of various asset classes and duration, and of the 55 funds, just 15 of the funds had positive year-to-date returns as of 10/31, and 11 of those (probably to no surprise) were found in the short-term taxable and tax-exempt asset classes.
(By the way, this is in no way, shape or form a judgment of Bob Brinker’s service. Bob simply lists these funds as a courtesy to readers. Bob’s model fixed-income portfolios are detailed separately and readers like me pay for that service, so the model portfolios won't be commented upon. I’m sure if I looked at the universe of Morningstar data for high-grade [investment grade], taxable, or tax-exempt bond funds for the same period, there would be many more funds, and likely with a similar relationship of positive to negative returns. )
Clients' “top 10” holdings and returns were run Wednesday night, October 31, 2018. Showing how the major positions performed in October ’18 and then again year-to-date:
Within clients' top 10 holdings, the 2 Schwab money market mutual funds – SWVXX (taxable) and the SWTXX (tax-exempt) were up 1.42% and 91 bp’s year-to-date, respectively. The final fixed-income related holding in the top 10-12 positions was the ProShares Short 20+ Year Treasury (NYSE:TBF) or unlevered, inverse Treasury ETF that returned +3% in October ’18 and +11% year-to-date.
As of 10/31 and per the Morningstar data:
- Bloomberg Barclays) Aggregate (NYSE:AGG): returned -0.6% in October and was down roughly 2% year-to-date.
- iShares Barclays 20+ Treasury ETF (NASDAQ:TLT): -3% in October ’18 and down roughly 8% year-to-date.
- Corporate High Yield ETF (NYSE:HYG): -2% in October ’18 but was up roughly 0.5% year-to-date.
- Emerging Mkt Bond ETF (NASDAQ:EMB): down 2.5% in October ’18 and down 4.37% year-to-date
This group didn’t include TIPS, or high-grade bond fund ETF’s or mortgage-backed securities, etc. etc. but these will be added over time.
Summary / conclusion: The 10-year Treasury yield peaked at 3.23% on October 5th, 2018, so if the yield on the 10-year trades above that level it will have broken a multi-decade downtrend. The 200-month moving average for the 10-year Treasury yield contract at the CBOE, or the TNX-X, currently resides at 3.229%.
That’s a key level.
The losses on bond mutual funds aren’t that bad so far, but according to Charlie Bilello at Pension Partners, the US bond markets are working on their worst 2 years since 1980-1981. Previous posts on the US bond markets, bond bear markets can be found here and here.
It feels like I’m repeating myself and writing the same things, but losses on bond funds just aren't that bad so far. A break of that 3.229%-3.23% yield on the 10-year Treasury though, and bond mutual fund statements might get interesting.
Let’s face it, the US bond markets today are less about “winning” (in a relative return sense) and much more about “not losing.”