Best & Worst Fixed Income ETFs Of The Year

December 27, 2018

What a difference seven weeks makes. That’s how long it took for the U.S. 10-year Treasury yield to reverse from a seven-year high of 3.26% to a 10-month low of 2.73%, a remarkable turnaround that paralleled equally volatile moves in the U.S. stock market.

ETFs tied to bonds and other fixed-income securities were whipsawed just the same, with many swinging from losses to gains—and vice versa—as the volatility in markets played out (bond prices and interest rates move inversely).

With the year now nearly over, fixed-income investors are faced with particularly elevated levels of uncertainty. The decisive breakout in yields during the summer months turned out to be not so decisive after all, with the 10-year Treasury now 0.50% below its highs.

With expectations growing that the Fed’s rate-hiking cycle may soon be over (if it’s not already), one can’t help but wonder whether the path of least resistance for interest rates is down from here.

The two-year Treasury bond yield was trading as low as 2.54% on Wednesday—a mere 0.04% above the upper end of the federal funds rate target—and is a reflection of how quickly and decisively the outlook for interest rates and bonds has changed.

Still A Down Year

That said, even with the late rally in bonds and retrenchment in yields, 2018 is still tracking to be the first down year for fixed income since 2013, when the iShares Core U.S. Aggregate Bond ETF (AGG) dropped 2%.

The AGG was down more than that as recently as November, but the past-seven-week rally in bonds narrowed those losses to 0.7%.

The surge in bonds in November and December did even better for Treasuries. They are on track to eke out a 0.2% gain in 2018, as measured by the iShares U.S. Treasury Bond ETF (GOVT).

On the other hand, while late-season market stress may have salvaged the year for Treasuries, it had the opposite affect on high-yield bonds. Credit spreads widened and the iShares iBoxx USD High Yield Corporate Bond ETF (HYG) sagged 2.2% on the year, the worst showing for junk bonds since the oil-price-induced sell-off of 2015.

We’ll take a look at some of the other fixed-income ETF movers in 2018, including the 10 best- and worst-performing ETFs of the year.

Top Performers

Treasuries may have made a comeback late in 2018, helping ETFs like GOVT to deliver positive returns, but not all U.S. government bonds are finishing the year in the green.

The 30-year Treasury yield increased from 2.74% at the start of the year to last trade around 3.05%, pushing prices for the long bond lower—and pushing prices higher for ETPs that bet against the long bond.

The iPath US Treasury Long Bond Bear ETN (DLBS) returned 15.3% in the year-to-date period through Dec. 26, making it the top-performing fixed-income product of the year.

Other inverse products that bet against the long bond, high yield and other areas of the fixed-income market that have fallen also rallied this year. In fact, inverse bond ETFs—those that rise when interest rates climb—make up the 10 best-performing fixed-income products of the year, with gains ranging from 6.2% to 15.3%.


Top-Performing Fixed-Income ETFs Of 2018 (all-encompassing)

Ticker Fund YTD Return (%)
DLBS  iPath US Treasury Long Bond Bear ETN 15.31
DTYS  iPath US Treasury 10-Year Bear ETN 15.01
TTT  ProShares UltraPro Short 20+ Year Treasury 9.47
DTUS  iPath US Treasury 2-Year Bear ETN 9.18
HYDD  Direxion Daily High Yield Bear 2X Shares 8.14
TMV  Direxion Daily 20+ Year Treasury Bear 3x Shares 8.01
DFVS  iPath US Treasury 5-Year Bear ETN 7.95
TBT  ProShares UltraShort 20+ Year Treasury 7.52
ULBR  VelocityShares Long LIBOR ETN 6.82
TAPR  Barclays Inverse U.S. Treasury Composite ETN 6.17


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