Bonds Rose With The Return Of Risk-Off Sentiment Last Week

Amid news of rising coronavirus cases in the US and elsewhere last week, investors favored bonds at the expense of risk assets, based on a set of exchange-traded funds representing the major asset classes for the trading week through June 26.

Inflation-linked government bonds outside the US-led fixed-income rally last week. SPDR FTSE International Government Inflation-Protected Bond (NYSE:WIP) rose 0.8%. The advance marks the fund’s first weekly gain in three weeks.

US inflation-indexed Treasuries were last week’s third-best performer. The i
Shares TIPS Bond (NYSE:TIP) rose 0.4%, the ETF’s third straight weekly gain that boost TIP to a record close.

Driving demand for inflation-linked bonds: renewed worry that inflation may be a rising risk in the years ahead, thanks to a recent surge in fiscal and monetary stimulus in the US and around the world to combat the economic loss due to Covid-19. In the shorter term, however, disinflation/deflation may prevail if the aftershock of the coronavirus blowback lingers.

“We are going to be facing now a significant amount of supply shocks in the global economy,” predicts Nouriel Roubini, a professor of economics at New York University.

“Eventually the inflation genie is going to get out of the bottle.”

Last week’s biggest loser: US-listed real estate investment trusts (REITs). Vanguard Real Estate (NYSE:VNQ) lost 4.0% — the third weekly decline for the fund.

For the major asset classes generally, prices fell 1.5%, based on the Global Markets Index that uses exchange-traded funds (GMI.F). This unmanaged benchmark, which holds all the major asset classes (except cash) in market-value weights via ETFs, has lost ground in two of the past three weeks.

ETF Performance Weekly Total Returns Chart

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