September 18, 2008 at 1:00 pm by Tom Lydon
Market volatility has investors running for cover in safe havens, and treasury exchange traded funds (ETFs) are no exception.
Equities came crashing down on Wednesday in the wake of the Federal Reserve’s bailout of insurer American International Group (AIG) and strict new short-selling rules from the Securities and Exchange Commission (SEC), reports Carl Gutierrez for Forbes.
The rules are designed to stop “naked” short-selling, which involves borrowing and selling what you don’t actually own. In a typical short sale, investors actually borrow shares before they sell them.
The new rules could help drive up interest in ETFs, which allow investors to conveniently and easily short entire segments of the markets, reports John Spence for MarketWatch. ETFs use derivatives and other instruments to deliver short exposure.
The predominate sentiment in the markets right now is fear, but we caution people not to panic. If you have a strategy in place, it will protect you in times like these.
Moving into U.S. Treasuries is a standard move when the markets go volatile. Yesterday, there were a few differences. Investors moved out of high-yield (or “junk bonds”) on fears of defaults.
Money managers piled into bonds on anticipation of heavy redemption demands from investors spooked by the Reserve Primary Fund’s breaking the buck.
Among Treasuries investors are moving to include:
- iShares Lehman 1-3 Year Treasury Bond (SHY)
- iShares Lehman 10-20 Year Treasury Bond (TLH)
- iShares Lehman Credit Bond Fund (CFT)
- iShares Lehman TIPS Bond (TIP)
For full disclosure, some of Tom Lydon’s clients own shares of SHY and TIP.
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