Attempting to time the top in ETFs following U.S. Treasury bonds has been a loser’s game for a long time as the bond funds continue to march to record highs. That’s one reason why investors are so bullish on Treasuries.
Last week’s stock rally and gold climbing back above $1,600 an ounce are making headlines but investors shouldn’t overlook Friday’s spike in Treasury yields.
The iShares Barclays 20+ Year Treasury Bond Fund (NYSEArca: TLT) hit an all-time high of $132.21 on Wednesday. However, the bond fund ended the week down about 3% from that peak. [Safety Dance: Treasury ETF Hits New All-Time High]
The bond ETF is still up about 8% so far this year amid persistent calls by some that there is a bubble in U.S. Treasuries. [Are Treasury Bond ETFs Bubblicious?]
Treasury yields have been in a steady decline for about three decades. Yields on the 10-year note are currently trading around 1.5%, near record lows.
“Ongoing concerns over Europe in addition to a struggling global economy have encouraged investors to move a portion of their investment dollars to the relative safety of the U.S.,” according to Chart of the Day. “This has resulted in a significant decline of the 10-year Treasury bond yield.”
The service notes that 10-year yields have declined a “fairly dramatic” 360 basis points since the peak of the credit bubble.
Long-term bond yields continue to plunge but still remain within the confines of a long-term downtrend, it said. However, on the chart, 10-year Treasury yields are close to a critical long-term support line.
The flight to safety and the Federal Reserve’s bond buying programs have helped keep Treasury yields and interest rates low. Bond prices and yields move in opposite directions.
Kimble Charting Solutions points out that the multi-decade support line in 10-year Treasury yields has triggered a rally every time it was hit. In other words, Treasury ETFs may be due for a pullback.
Additionally, frothy bullish sentiment on Treasury bonds creates the potential for a violent move higher in yields, Kimble suggests.
In ETF flows, investors have been pulling cash from shorter-term Treasury ETFs the past month. [Investors Fleeing Safe-Haven ETFs]