While the fixed income space has struggled for several months on the interest rates hike speculations, the sentiments reversed last month post the Fed’s still dovish stance. The Fed laid the foundation for the first interest rate hike in the U.S. since 2006 by dropping the word ‘patient’ but committed not be impatient and provided a cautious outlook on inflation and economic growth.
This suggests that the interest rate hike is unlikely until later this year and that the near-zero interest rate policy will stay in place for longer than expected. Further, a slew of disappointing economic data lately stirred up slowdown concerns and might further delayed the prospect of a rates hike. All these have breathed a new lease of life into the depressed bond market, sending yields lower.
Yields on 2-year Treasury notes dropped to around 0.55% as of today from 0.68% on March 10 while yields on 10-year Treasury notes slipped to below 1.96% from 2.12% over the same period (read: 3 Bond ETFs for Yield and Growth if Rates Stay Low).
Apart from this, sluggish earnings expectations, lofty stock valuations, sliding oil prices, global growth concerns, and geopolitical concerns are driving demand for fixed income securities. While nations across the globe have chosen cheap money policies to stimulate sagging growth and fight deflation, it will take some time for the economies to be on track.
Given these bullish trends, many U.S. bond ETFs have seen smooth trading over the past one month. While passively managed funds are most common and popular, an active management strategy for the bonds could be better options and result in higher returns if managed properly. Â
Here, we have taken a closer look at the ultra-popular active bond ETF – PIMCO Total Return Exchange-Traded Fund (BOND – ETF report) – and compare it with the newly debuted SPDR DoubleLine Total Return Tactical ETF (TOTL – ETF report).
