International vs US bond momentum

[ochotona]

I noticed the IGOV international sovereign bond ETF is beating IEF US Treasury 7-10 year bond ETF. I'm taking the unweighted average of 1, 3, 6, and 12 month total returns. The downturn in US bond performance is very recent.

[ochotona]

As everyone knows, I get in and out of positions using momentum, as defined and used in the paper A Quantitative Approach to Tactical Asset Allocation.

Let's consider the two basic fixed-income safe-haven assets... T-Bills (SGOV or BIL) and the 10-year Treasury (IEF).

If we compare SGOV to any non-US currency ETF, for example the Swiss Franc FXF (Invesco has several other currencies - Euro, Yen, Can Dollar, Aus Dollar), then US T-Bills are significantly lagging. Likewise IEF is lagging significantly behind International Government Bonds IGOV.

The % measure shown is the average of 1, 3, 6, and 12 month total returns for those ETFs:

IEF 1.82%
IGOV 5.66%

SGOV 2.15%
FXF 9.20%

Therefore, if one is inclined to trade, it makes sense to allocate to both US and exUS fixed income. How much to each? If you look at Vanguard Global Bond ETF BNDW, it allocates half to US, half to exUS. Maybe that's an allocation to start with.

Just as a reminder, Bogleheads' basic allocation is 30% of fixed income to exUS fixed income.

Certainly, if you hold gold, you really have to count it as an exUS currency, so you don't have to have that much foreign exchange.

That's how I'm rolling these days. But, you have to evaluate monthly and become accustomed to moving to the other wide of the boat.

[Kevin K.]

As everyone knows, I get in and out of positions using momentum, as defined and used in the paper A Quantitative Approach to Tactical Asset Allocation.

Let's consider the two basic fixed-income safe-haven assets... T-Bills (SGOV or BIL) and the 10-year Treasury (IEF).

If we compare SGOV to any non-US currency ETF, for example the Swiss Franc FXF (Invesco has several other currencies - Euro, Yen, Can Dollar, Aus Dollar), then US T-Bills are significantly lagging. Likewise IEF is lagging significantly behind International Government Bonds IGOV.

The % measure shown is the average of 1, 3, 6, and 12 month total returns for those ETFs:

IEF 1.82%
IGOV 5.66%

SGOV 2.15%
FXF 9.20%

Therefore, if one is inclined to trade, it makes sense to allocate to both US and exUS fixed income. How much to each? If you look at Vanguard Global Bond ETF BNDW, it allocates half to US, half to exUS. Maybe that's an allocation to start with.

Just as a reminder, Bogleheads' basic allocation is 30% of fixed income to exUS fixed income.

Certainly, if you hold gold, you really have to count it as an exUS currency, so you don't have to have that much foreign exchange.

That's how I'm rolling these days. But, you have to evaluate monthly and become accustomed to moving to the other wide of the boat.

This is really a smart strategy for those like yourself with the skill and time to manage it. I unfortunately have neither, but it seems like there are some useful take-ways that could be implemented in a more passive PP-ish portfolio. For example, what about using VT (global stocks automatically adjusted to market weights - currently ~65:35 US:Int'l) instead of VTI and BNDW instead of TLT? BNDW is dollar-hedged so you're not introducing currency risk (thought the way things are going an unhedged foreign bond fund might be advantageous). Mixed credit qualities vs. all Treasuries, but then again half of your bonds aren't going to be affected by a Treasury default or (more realistically?) the ongoing avoidance of U.S. assets by the rest of the world. Thoughts?

[ochotona]

I doesn't take much time to manage this... Stockcharts.com, PerfCharts option, you can pull off the 1, 3, 6, 12 month total returns for all of your tickers in a few minutes. Trade once a month. The hard part is sticking to it, second-guessing yourself, letting the short-term ruin your long-term plans... the same old things.

BNDW, yes, it's hedged, I just looked at it to see the basic allocation.

The unknowable part is... if you have gold and miners, that has been providing a lot of extra juice always in the same direction as FX, so maybe it reduces overall the need for FX even more.

[Kevin K.]

I doesn't take much time to manage this... Stockcharts.com, PerfCharts option, you can pull off the 1, 3, 6, 12 month total returns for all of your tickers in a few minutes. Trade once a month. The hard part is sticking to it, second-guessing yourself, letting the short-term ruin your long-term plans... the same old things.

BNDW, yes, it's hedged, I just looked at it to see the basic allocation.

The unknowable part is... if you have gold and miners, that has been providing a lot of extra juice always in the same direction as FX, so maybe it reduces overall the need for FX even more.

Thanks for your insights. I'm grateful to be able to learn from you.