Bonds have two price components, yield and response of price to prevailing interest rates. How much of a return premium should investors in bonds expect? How can investors enhance this premium? These blog entries examine investing in bonds.
How do returns of different asset classes recently interact with inflation as measured by monthly change in the not seasonally adjusted, all-items consumer price index (CPI) from the U.S. Bureau of Labor Statistics? To investigate, we look at lead-lag relationships between change in CPI and returns for each of the following 10 exchange-traded fund (ETF) asset class proxies:
Using monthly total CPI values and monthly dividend-adjusted prices for the 10 specified ETFs during December 2007 (limited by EMB) through mid-August 2026, we find that:Keep Reading
Do exchange-traded funds (ETF) that hold convertible corporate bonds offer attractive performance? To investigate, we compare performance statistics for the following four convertible bond ETFs, three available and one dead, to those for a monthly rebalanced 60%-40% combination of SPDR S&P 500 ETF Trust (SPY) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD):
We focus on average return, standard deviation of returns, reward/risk (average return divided by standard deviation of returns), compound annual growth rate (CAGR) and maximum drawdown (MaxDD), all based on monthly data. Using monthly dividend-adjusted returns for all specified ETFs since inceptions and for SPY and LQD over matched sample periods through July 2026, we find that:Keep Reading
How should global investors assess country sovereign bond and equity risks? In his July 2026 paper entitled “Country Risk: Determinants, Measures and Implications – The 2026 Edition”, Aswath Damodaran examines country risk from multiple perspectives. To estimate a country risk premium, he considers direct and indirect measures of country government bond risk and country equity risk. Based on a variety of sources and methods, he concludes that:Keep Reading
A subscriber asked which exchange-traded fund (ETF) asset class proxies make the best safe havens for the U.S. stock market as proxied by the S&P 500 Index. To investigate, we test 16 ETFs/funds as potential safe havens:
State Street Utilities Select Sector SPDR (XLU)
iShares 20+ Year Treasury Bond (TLT)
iShares 7-10 Year Treasury Bond (IEF)
iShares 1-3 Year Treasury Bond (SHY)
State Street SPDR Bloomberg 1-3 Month T-Bill (BIL)
iShares iBoxx $ Investment Grade Corporate Bond (LQD)
iShares Core US Aggregate Bond (AGG)
iShares TIPS Bond (TIP)
Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP)
Vanguard Real Estate Index Fund (VNQ)
SPDR Gold Shares (GLD)
iShares Silver Trust (SLV)
Invesco DB Commodity Index Tracking Fund (DBC)
United States Oil Fund, LP (USO)
Invesco DB US Dollar Index Bullish Fund (UUP)
Grayscale Bitcoin Trust (GBTC)
We consider three ways to find safe havens for the U.S. stock market based on daily or monthly returns:
Contemporaneous return correlation with the S&P 500 Index during all market conditions at daily and monthly frequencies.
Performance during S&P 500 Index bear markets as defined by the index being below its 10-month simple moving average (SMA10) at the end of the prior month.
Performance during S&P 500 Index bear markets as defined by the index being -20%, -15% or -10% below its most recent peak at the end of the prior month.
Using daily and monthly dividend-adjusted closing prices for the above 16 funds since their respective inceptions, and contemporaneous daily and monthly levels of the S&P 500 Index since 10 months before the earliest inception, all through April 2026, we find that:Keep Reading
Using all training and real-time data available to you, please provide your unique view on whether investing in each of the following ETFs is favorable, neutral or unfavorable for the balance of 2026: BIL, SHY, VTIP, IEI, IEF, TIP and TLT. Do not provide any explanations.
We then compare and contrast results. Using responses to the prompt as posed in late May 2026, we find that:Keep Reading
The possibility that a bond issuer may default drives the credit risk premium, the average difference in return between such a bond and a U.S. Treasury security with matched duration. The possibility that interest rates may vary drives the term premium, the average difference in return between long-duration and short-duration bonds. How have these two premiums behaved over the long run? In their March 2026 paper entitled “Reconstructing a Century of U.S. Corporate Bonds: Credit Risk in Historical Perspective”, Mohammad Ghaderi, Sebastien Plante, Nikolai Roussanov and Sang Byung Seo address issues in extant long-run bond databases by constructing a new one from corporate bond quotes spanning 128 years. This sample captures major episodes of economic distress, including post-World War I recessions, the Great Depression, 1970s stagflation and the 2008 Global Financial Crisis. They then aggregate data to construct value-weighted bond market time series for the full dataset and credit risk subsets. Using hand-collected corporate bond quotes from three print archives combined with modern datasets to build a monthly sample of over 100,000 unique bonds during April 1895 through June 2022, they find that:
“Simple Term Structure ETF/Mutual Fund Momentum Strategy” tests a simple relative momentum strategy on the term structure of U.S. Treasuries using exchange-traded fund (ETF) and mutual fund proxies. Here, we update and extend that analysis with the following seven ETFs:
State Street SPDR Bloomberg 1-3 Month T-Bill ETF (BIL)
iShares 1-3 Year Treasury Bond ETF (SHY)
Vanguard Short-Term Inflation-Protected Securities Index ETF (VTIP)
iShares 3-7 Year Treasury Bond ETF (IEI)
iShares 7-10 Year Treasury Bond ETF (IEF)
iShares TIPS Bond ETF (TIP)
iShares 20+ Year Treasury Bond ETF (TLT)
We allocate all funds at the end of each month to the one ETF with the highest total return over a specified ranking (lookback) interval, ranging from one month to 12 months. We start the test in July 2002 and add ETFs as they become available. To accommodate the longest lookback interval, portfolio formation commences 12 months after the start of the sample. We focus on compound annual growth rate (CAGR) and maximum drawdown (MaxDD) as key performance metrics. Using monthly dividend-adjusted closing prices for the seven ETFs as they become available through February 2026, we find that:Keep Reading
How do returns of different asset classes recently interact with inflation as measured by monthly change in the not seasonally adjusted, all-commodities producer price index (PPI) from the U.S. Bureau of Labor Statistics? To investigate, we look at lead-lag relationships between change in PPI and returns for each of the following 10 exchange-traded fund (ETF) asset class proxies:
Using monthly total PPI values and monthly dividend-adjusted prices for the 10 specified ETFs during December 2007 (limited by EMB) through January 2026, we find that:Keep Reading
We consider both linear correlation and non-linear ranking tests. We look at TIP returns over the past 1, 3, 6 and 12 months separately, and as an average of these past returns (TIP 13612). We look at correlation variability and perform a simple test of economic value. Using monthly dividend-adjusted returns for TIP and the above asset class proxies as available during December 2003 (limited by TIP) through January 2026, we find that:Keep Reading
Become a CXO Member
Gain access to hundreds of premium investing research articles and CXO's trading strategies
