Treasury ETFs: Reverse Flight to Safety?
August 7th 2012 at 11:02am by John Spence
The recent pullback in iShares Barclays 20+ Year Treasury Bond Fund (NYSEArca: TLT) from all-time highs suggests the incredible amount of fear built up in markets is unwinding.
The $3.9 billion Treasury ETF fell more than 1% on Tuesday and dropped below its 50-day moving average. TLT hasn’t traded below this technical indicator since April.
Pessimistic investors are extremely bullish on U.S. Treasuries, which are seen as a safe haven from Europe’s debt woes and weakening economic data. [When Will the Treasury Bubble Pop for Bond ETFs?]
Bloomberg News reports investors in Treasuries are the most optimistic since November 2010, according to a recent survey by Stone & McCarthy Research Associates.
The high number of bulls means Treasury ETFs could fall fast in a countertrend move. Equity bulls argue the market has plenty of fuel to rally if all the money hiding out in bonds comes tumbling into stocks.
Yields on the 10-year Treasury note climbed above 1.6% on Tuesday after dipping below 1.4% in July. Yields have been depressed in 2012 on the flight to safety and the Federal Reserve’s commitment to keep interest rates low. Bond yields and prices move in opposite directions.
“Treasury yields are just too low,” said Scott Minerd, chief investment officer of Guggenheim Partners, in the Bloomberg article. “What’s been surprising is that the economy is still moving along, despite the headwinds in the world economy. Yields will likely rise into the year end with risk markets rallying.”
There are several ETFs that bet against Treasury bonds and profit from rising yields. For example, trading volume in ProShares Short 20+ Year Treasury (NYSEArca: TBF) has picked up lately. The inverse Treasury ETF climbed above its 50-day moving average on Tuesday. [Short ETFs: U.S. Treasury Bonds]
iShares Barclays 20+ Year Treasury Bond Fund
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