US high yield bonds took leadership position among major asset classes during the second week of November. This conclusion was based on a representative ETF set. Even though there was an increase in the interest rates over a total of five trading days, the higher rates present in junk bonds were overwhelmed by the advance exhibited by investment grade yields. Treasuries deserve special mention in this regard.
Boost in junk bonds
The high yield bonds rate spread minus the Treasuries went lower, boosting the prices of junk bonds during the second week of November. There was a 1.4 percent jump for week ending November 18 for iShares iBoxx $ High Yield Corporate Bond. This constitutes the first week of gain in any month for this ETF. In contrast, corporate bonds that were considered fit for investment suffered the most. The mix of going north dollar and increasing interest rates pushed down the PowerShares International Corporate Bond. This bond went down to the lowest closing price in its three years. The global markets, however, has no shortage of winners. Even then, the downsides were in control through the ETF centric version of Global Markets Index. This is an unmanaged and investable benchmark which holds all important asset classes in their market value weights. The GMI dipped 0.2 percent for five trading days since November 18.
GMI and equities
The GMI forecast, based on data crunched until October, continues to mirror risk premiums which went on a rebound in 2016. The anticipated GMI risk premium in March was a comparatively tepid three percent. When adjusted for a mix of mean reversion in the longer term and momentum for the short term, then the present risk premium of ex ante for the GMI is adjusted to a yearly 3.8 percent. The trailing return of GMI went lower over September. Due to this, the anticipated 3.9 percent gain of the GMI is a little above the benchmark 3.2 percent return.
US equities lead for the trailing one year results. The Vanguard Total Stock Market is ahead by 7.6 percent on total return basis. This is applicable for 12 months until November 18. The corporate bond market, which is foreign investment grade, has dipped to last position in one year return among the important asset classes. The PICB has decreased by 3.7 percent for the last 12 months. There is a modest three percent increase in the GMIFs one year return in total.