Confidence Comes at a Cost for Treasury ETFs

January 12th at 12:00pm by Tom Lydon

Economic sentiment is improving. That’s a positive for the markets, but it’s been bad news for Treasury exchange traded funds (ETFs) today.

Portugal stepped forward with a big bond sale to prove that it can still raise money in international markets. The downside to that is that it restored confidence and sent Treasuries tumbling. ETFs like PIMCO 25+ Year Zero Coupon U.S. Treasury (NYSEArca: ZROZ), Schwab Intermediate-Term U.S. Treasury (NYSEArca: SCHR) and iShares Barclays 20-Year Treasury Bond (NYSEArca: TLT) are down today.

As economic conditions improve, we could see more of the same. And once the Federal Reserve raises interest rates – whenever that is – holders of long-term Treasury bonds could be at risk of losing principal. [Treasury ETF Owners Need a Wake-Up Call.]

On the plus side, short Treasury ETFs are benefiting nicely.

Direxion Daily 30-Year Treasury Bear 3x Shares (NYSEArca: TMV) is up nearly 1% so far today:

Treasury Bond ETFs

While ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT) is up 1.4% today:

Treasury ETFs

If economic confidence continues to improve, it might be time to start thinking about how you’ll act. We suggest having a simple strategy like trend following.

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.