Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

U.S. Bond Market Delivers Mixed Results So Far In 2021

By James PicernoBondsSep 07, 2021 07:51AM ET
U.S. Bond Market Delivers Mixed Results So Far In 2021
By James Picerno   |  Sep 07, 2021 07:51AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

Uncertainty remains elevated for the economy, inflation, monetary policy and the path of the pandemic as the final quarter of 2021 approaches. As investors struggle to get a handle on how the final run of 2021 plays out, the US bond market has delivered a mixed performance year to date, based on a set of ETFs through Sep. 3.

Several narratives are roiling expectations. On the one hand, the risk of slower growth and disinflation continue to churn, driven by a rebound in the pandemic, the fading of federal stimulus support, and other factors. Meantime, investors worry that the recent jump in inflation will persist—an outlook that the Federal Reserve says is a low-risk event.

Meanwhile, unusually low interest rates are pushing investors to search for yield in junk bonds. Although spreads on junk bonds relative to Treasuries are close to the lowest in decades, the appetite for higher yield is throwing caution to the wind.

Leading the winners in this year’s bond-market race: junk bonds and inflation-indexed government securities. On the flip side, long-maturity corporates and Treasuries are deep in the red.

The top performer on our list: SPDR Bloomberg Barclays Short Term High Yield Bond (NYSE:SJNK), which is up 4.7% on a total return basis this year. Notably, SJNK has been on a tear recently: the ETF posted its eleventh straight daily advance at last week’s close.

SJNK Daily Chart
SJNK Daily Chart

Running a close second for US bond performance in 2021: short-term Treasury Inflation Protected Securities, a.k.a. TIPS. The iShares 0-5 Year TIPS Bond ETF (NYSE:STIP) is sitting on a 4.4% gain so far this year.

ETF Performance YTD Total Returns
ETF Performance YTD Total Returns

More than half of our proxy bond ETFs are nursing losses this year. The deepest decline: iShares 20+ Year Treasury Bond (NASDAQ:TLT) has shed 5.1%.

A negative bias is clearly blowing for investment-grade bonds generally, based on the market benchmark: Vanguard Total Bond Market Index Fund ETF Shares (NASDAQ:BND) is down 0.9% in 2021.

Some analysts recommend keeping expectations muted. “The Treasury market will remain in this sort of lull,” predicts Bill Herrmann at Wilshire Phoenix LLC. “The labor data points to fears of delta, which all may turn out to be just fears, but we can only go on the data that we are presented with. It’s looking really likely that the Fed is going to be handcuffed against normalizing policy at all until delta is contained.”

The near-term outlook may be dull, but the crowd’s appetite for Treasuries remains robust, reports The Wall Street Journal: “Investors keep buying U.S. Treasury securities, defying predictions for a broad selloff that would send bond yields back to their March highs.”

A key factor for bond market performance for the rest of the year: inflation. But the outlook is cloudy – more so than usual – as debate rages on whether the recent surge in inflation is transitory or marks the start of an extended run of higher pricing pressure.

“Financial markets continue pricing in both that the inflation will prove transitory and that policymakers will barely need to budge in response. We see this potential combination of outcomes as unlikely,” counsels Rebecca Patterson, director of investment research at Bridgewater Associates.

A reality check arrives next week (Sep. 14) with the release of US consumer price inflation for August. Although it’s premature to dismiss the possibility that inflation could run hotter for longer than expected, the possibility that pricing pressure will ease shouldn’t be dismissed either.

Consider, for instance, that The Capital Spectator’s combination forecasting model is projecting that the one-year change for core CPI will drop for a second month to 3.6% from 4.2% previously. If the forecast is correct, more or less, the news will boost the case for expecting inflation to ease. By contrast, an upside surprise would likely take a deeper bite out of bonds, particularly at the long end.

Core CPI % Changes
Core CPI % Changes
U.S. Bond Market Delivers Mixed Results So Far In 2021

Related Articles

U.S. Bond Market Delivers Mixed Results So Far In 2021

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Steve Siew
Steve Siew Sep 07, 2021 3:10PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Disinflationary all the way!
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email