Current conditions in the US investment-grade bond markets



Importance of U.S. Treasury auctions

The yields and prices for Treasuries are determined through a public auction process. Treasury auctions are the primary source of Treasury securities. They indicate the current market conditions for these securities.

Part 1

Treasury yield curve

The Treasury yield curve plots Treasury yields for different maturities. Yield and price movements in U.S. Treasuries are watched closely by market participants all over the world. Treasuries have negligible default risk. They’re backed by the U.S. government’s full faith and credit. When there’s high market volatility (VXX), domestic and overseas investors flock to U.S. Treasuries because they’re low risk. The yields on riskier bonds like U.S. corporate bonds and yields on sovereign debt—issued by overseas governments—are determined by a spread over and above U.S. Treasuries of similar maturities.

Impact of Treasury yields on ETF investments

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Bond prices and yields move in opposite directions. Changes in Treasury yields would affect the prices of fixed income exchange-traded funds (or ETFs) holding Treasuries like the iShares 7–10 Year Treasury Bond ETF (IEF) and the iShares 20+ Year Treasury Bond ETF (TLT). Treasury yields are also a key variable used to determine equity risk premiums. As a result, they influence the required rates of return on stocks—like those included in the SPDR S&P 500 ETF (SPY) and the iShares Russell 2000 ETF (IWM).

In this weekly update, you’ll read a detailed analysis of these auctions in the following parts in the series. You’ll also read an analysis of current primary and secondary market conditions in the U.S. corporate bonds market. We’ll also discuss major factors influencing Treasury and corporate bond yields. We’ll discuss their impact on ETF investments. The last two parts in the series will discuss high-quality U.S. bonds’ outlook.

Last week, the U.S. Department of the Treasury auctioned $115 billion in Treasury securities. In the next part of the series, we’ll discuss the key investor takeaways from the ten-year Treasury Inflation-Protected Securities (or TIPS) auction.

Click here to learn more about U.S. Treasury auctions.


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