Why US Treasury ETFs benefit from higher market volatility

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An overview of market activity in investment-grade debt

Investment-grade debt (BND) includes both U.S. Treasuries (IEF) and high-quality corporate bonds. The latter must be rated BBB- or above, as per Standard & Poor’s ratings guidelines, to qualify as investment grade. This series will analyze major trends in the primary and secondary markets in U.S. investment-grade debt.

Part 1.1

Volatility at highest level in more than two years

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Financial markets around the world were jolted over the past couple of weeks. Volatility, as measured by the VIX (VXX), or the index commonly known as the “fear factor,” spiked to 25.27 on October 15. This was the highest volatility level seen since June, 2012. The VIX is a weighted average index of put and call options on the S&P 500 Index (SPY). It is designed to give an indication of the volatility in the S&P 500 Index over the next 30 days.

In this series

A number of domestic and international factors were responsible for the higher volatility. Several market sectors were affected as well. We’ll analyze these in greater detail and how they affected the demand for U.S. Treasuries in the coming sections. We’ll also discuss other primary and secondary market trends. Part 10 will analyze the near-term outlook for U.S. investment-grade debt.

Part 1

Primary market trends

New bond sales from issuers take place in the primary market. Higher market volatility affected the demand and supply of both investment-grade corporate bonds and U.S. Treasuries. Read about the latest corporate bond trends in the next section.

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