Red ink spattered near and far in last week’s negotiations for major asset classes, based on a set of exchange-traded funds at the close of Friday, May 14.
Treasury bonds indexed to inflation registered the smallest setback: a fractional loss that has not effectively changed. Despite the weekly decline, the iShares TIPS Bond ETF (NYSE 🙂 remains close to a record high, as shown in the weekly chart below.
Thanks to , Inflation-linked Treasury bills are in high demand. “The US is about to sell 10-year inflation-linked debt [this] week, keeping the spotlight in a corner of the bond market that has rarely attracted so much attention in almost a quarter of a century since its debut, ”Bloomberg reports.
Increased fears about the risk of furious consumer price gains as the resumption of growth is driving investors of all stripes to seek coverage in inflation-protected treasury bonds, a market that has grown to $ 1.6 trillion. Traders speak of new entrants, such as retail buyers and global macro strategists – what veterans are calling the “tourist crowd”. Money is also flowing into the largest exchange-traded fund for TIPS, part of the violent demand that has pushed inflation expectations over the next half decade to a 16-year peak.
Emerging markets stocks suffered the biggest drop last week for major asset classes. ETF shares in the Vanguard FTSE Emerging Markets Index Fund (NYSE 🙂 fell 3.2%, leaving the ETF close to its lowest level of the year. Several factors are weighing on sentiment for this slice of global markets, notes Barron’s. “Inflation – and the possibility of higher American rates and a stronger dollar – combined with a slowdown in China’s credit cycle could spell trouble for emerging markets in general.”
US stocks () and bonds () also fell last week, recording relatively average losses.
The Global Markets Index (GMI.F) also lost ground last week, falling 1.2%. This unmanaged benchmark holds all major asset classes (except cash) at weights to market value through ETF proxies.
The review of the main asset classes through a one-year window still paints an optimistic profile. At the moment, almost all components of the global markets are recording a gain, led by US stocks: The Vanguard Total US Stock Market (VTI) rose 53.2% on a total return basis compared to the previous year’s level.
Note that one-year returns to some corners of the global markets are exceptionally high at the moment because the previous year’s prices were drastically depressed due to the coronavirus crash. Consequently, previous year’s results will remain temporarily high due to extreme year-over-year comparisons until the collapse of last year’s markets is eliminated from annual results.
The only loss in the year-over-year comparison: US bonds. The Vanguard Total US Bond Market (BND) recorded a 0.4% drop on Friday from the previous year’s price after accounting for distributions.
GMI.F’s one-year return is currently an unusual 36.5% increase, although the recovery effect from the pandemic effects in 2020 still explains much of the current increase – a gain that will decrease as one-year returns normalize in the coming months.