Unfortunately for fixed-income ETF investors, the rise of mortgage rates is only part of the troubling picture. The multiyear milestone for mortgages comes as Treasury yields are also inching higher — the 10-year is up more than 0.60 percent year-to-date, now above 3 percent. MBS and Treasurys tend to be highly correlated, and as yields rise, prices typically fall.
Aggregate bond ETFs tracking or orbiting the popular Bloomberg Barclays US Aggregate Bond Index help show that the pinch this year is stemming from more fronts than mortgages alone.
Aggregate bond ETFs
These funds own various segments of the bond market, and in 2018 every segment from municipals to MBS to investment-grade corporates to Treasurys is in the red.
The Agg index is about 28 percent allocated to MBS. That means funds tracking it, such as the $55 billion iShares Core U.S. Aggregate Bond ETF (AGG), the $5 billion Schwab US Aggregate Bond ETF (SCHZ) and the $2.8 billion SPDR Portfolio Aggregate Bond ETF (SPAB) all carry more than a quarter of the portfolio in MBS.
The $36 billion Vanguard Total Bond Market ETF (BND), which tracks the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, has about 21 percent of the portfolio in MBS, according to FactSet data. These ETFs, too, are trading at lows not seen since spring 2017, extending losses year-to-date: