Bond ETF Performance: Gainers and Losers in 2024

New York City, NY – The US bond market has seen mixed results so far this year, with some areas experiencing modest gains while others have suffered sharp losses. Based on a set of ETFs (exchange-traded funds), the market is showing a complex picture of its year-to-date performance through Friday’s close (Feb. 9).

While certain components of the market are performing moderately well, longer-term maturities have experienced significant declines. The standard benchmark for investment-grade fixed income securities remains underwater, adding further complexity to the market’s current state.

The Vanguard Total Bond Market Index Fund ETF Shares (BND), which tracks a benchmark widely followed as a proxy for the broad fixed income space, has seen a 1.3% year-to-date decrease. This setback contrasts with BND’s earlier rebound in 2023, following a previous sharp loss.

The SPDR Bloomberg Investment Grade Floating Rate ETF (FLRN) is highlighted as one of the leading performers year-to-date, with a 0.8% increase in 2024 so far. The fund has benefited from higher resets of interest rates via its portfolio of variable-rate securities, but future headwinds may arise as the Federal Reserve is expected to start cutting interest rates later this year.

Conversely, long-dated Treasuries are facing significant headwinds, with the iShares 20+ Year Treasury Bond ETF (TLT) down by 4.8% in 2024. This decline more than offsets TLT’s modest rebound in 2023, which barely made a dent in deep losses over the previous two years.

The ongoing restrictive policy maintained by the Federal Reserve poses a key challenge for Treasuries. With the central bank expected to start cutting interest rates at some point this year, the market’s future remains uncertain.

The current 5.25%-to-5.50% Federal funds rate is significantly above the 0.9%-1.1% range of estimates for the neutral rate, as projected by the New York Fed. Additionally, the resilient US economy is raising doubts about the timing of the Fed’s rate cuts, with lower rates by June being more likely.

Whenever the rate cuts start, it will be a crucial moment for the battered realm of long Treasuries. The market’s performance in 2024 has already proven to be complex and uncertain, leaving investors and analysts alike on edge.