Should We Be Worried About Treasury ETFs?

December 23rd at 1:00am by Tom Lydon

Treasury bonds and exchange traded funds (ETFs) that hold them can be some of the safest investments any investor can hope to hold. However, high government debt and an unwillingness to address current problems are putting bondholders on edge.

Former Federal Reserve Chairman Alan Greenspan recently stated that “a bond market crisis is likely unless we do something about the budget deficit,” reports Rich Miller for The Daily Crux. For the 2010 fiscal year, the government incurred a $1.29 trillion budget deficit, ending on Sept. 30. [Treasury ETFs Up As Worries Mount…But Will It Last?]

Greenspan believes that the economy could grow more than 3.5% or more for the fourth quarter. “The unemployment rate should start coming down next year” and “the most you can expect is that it will get down to 9 percent, or the high eights, by the end of the year,” Greenspan adds.

Mohamed El-Erian, chief executive officer of PIMCO, projects that the economy will expand 3% to 3.5% in the fourth quarter of 2011 year-over-year, which Greenspan also agrees with.

The world economy will become unbalanced if confidence in U.S. Treasuries wane, according to The Daily Crux, and there are already signs that confidence is dying.

  • New tax deals will increase government debt over the next two years. Moody’s is threatening to reduce the U.S. government debt rating as a result.
  • Recently, U.S. Treasuries experienced the largest two day sell-off since the Lehman Brothers incident.
  • 10-year T-note yields set a six-month high recently and analysts believe that it will push higher.
  • Treasury note yields have been rising since October 7th.
  • The U.S. government budget deficit hit $150.4 billion in November, the largest number yet on record.
  • Global investors were not thrilled about the Fed’s QEII plan.
  • Americans have become disillusioned by the Fed’s control over the financial system.
  • Everyone around the world is beginning to realize that the U.S. debt problem is here to stay.
  • Bondholders are becoming anxious about the Fed’s apathetic outlook on inflation.
  • The government will try to finance debt that is about 27.8% of GDP in 2011.

For more information on Treasury bonds, visit our Treasury bonds category.

  • ProShares UltraShort 20+ Year (NYSEArca: TBT)
  • Direxion Daily 30-Year Treasury Bear 3x Shares (NYSEArca: TMV)
  • Vanguard Extended Duration (NYSEArca: EDV)
  • PIMCO 25+ Year Zero Coupon U.S. Treasury (NYSEArca: ZROZ)
  • iShares Barclays 20-Year Treasury Bond (NYSEArca: TLT)

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.