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March 27, 2018

Foreign Bond Markets Rallied On Trade-War Fears

Stock markets around the world tumbled last week over concerns about a possible trade war between the US and China. The risk-off posture generated renewed demand for bonds, particularly foreign bonds, which delivered the only gains last week for the major asset classes, based on a set of exchange-traded products.

Supported by a weak greenback, foreign inflation-indexed government bonds in US-dollar terms posted the strongest advance for the five trading days through Friday, Mar. 23. SPDR Citi International Government Inflation-Protected Bond (WIP) jumped 1.2% — its first weekly rise since mid-February.

Global equity markets, on the other hand, fell sharply last week, led by a hefty loss in US stocks. Vanguard Total Stock Market (VTI) declined 5.7% — the fund’s biggest weekly decline in over two years.

Despite last week’s market volatility, a generally positive one-year trend prevails for most of the major asset classes. Notably, stocks in emerging markets are still on top, posting the strongest year-over-year gain. Vanguard FTSE Emerging Markets (VWO) was up 17.0% over the 12 months through Friday.

Meanwhile, the lone loser for the one-year is still US real estate investment trusts (REITs). Vanguard Real Estate (VNQ) is down 7.4%, the only case of red ink for annual performances among the major asset classes.

Using current drawdown as a risk guide continues to show that broadly defined commodities are still posting the biggest peak-to-trough slide for the major asset classes. The drawdown for iPath Bloomberg Commodity (DJP) at last week’s close was more than -46%. Meanwhile, foreign government bonds in developed markets via SPDR Bloomberg Barclays International Treasury Bond (BWX) posts the smallest drawdown at the moment at just -1.3%.

Courtesy of James Picerno, a veteran financial journalist since the early 1990s at Bloomberg, Dow Jones, etc. before becoming an independent writer/analyst/consultant in 2008. James is also the author of Dynamic Asset Allocation (Bloomberg Financial, 2010) and he writes at The Capital Speculator(Author Archive here)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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