For investors willing to stay away from potential losses, Vanguard Total Bond Market ETF (BND – ETF report) is probably on the radar now. The fund just hit a 52-week low, and shares of BND are down roughly 4.2% from their 52-week high price of $84.35/share.
Are more pains in store for this ETF? Let’s take a quick look at the fund and its near-term outlook to get a better idea of where it might be headed:
BND in Focus
BND provides exposure to the broad investment-grade bond market in the U.S., including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities all with maturities of more than one year. BND charges investors 8 basis points a year in fees and invests 43.5% of its asset base in Treasuries, 20.4% in government mortgage backed securities and 15.9% in industrial bonds (see all Total Bond Market ETFs here).
Why the Move?
The U.S. bond market has been an area to watch lately given the widespread sell-off in Treasury bonds on concerns of a possible interest rate hike in December by the Fed following stellar jobs report for October and the Fed Chairwoman Janet Yellen’s affirmative view on the same. The Treasury sell-off sent the yields on two-year notes to a five-year high and on benchmark 10-year notes to nearly a four-month high yesterday.
More Pains Ahead?
BND has a negative weighted alpha of 2.30. A negative weighted alpha indicates the fund’s likelihood to generate losses. So, it is better to stay away from this fund until the situation in the bond market stabilizes and a clearer picture regarding the interest rate movement emerges.
