Treasury ETFs: Flight from Safety

September 13th at 11:23am by John Spence

Investors seeking safety have piled into U.S. Treasury bonds in recent years. However, Treasury yields are rising and bond prices are falling as investors slowly shift into riskier sectors.

For example, iShares Barclays 20+ Year Treasury Bond Fund (NYSEArca: TLT) is down about 8% from the record highs seen less than two months ago, according to Schaeffer’s Investment Research.

“Investors have been shifting money out of safe-haven investments and into riskier assets. The move is taking a toll on bonds and, given the big rise in the TLT in recent years, there is ample room for shares to fall in the weeks/months ahead,” Schaeffer’s said.

Investors have pulled $433 million from TLT the past month, according to XTF. Meanwhile, iShares Barclays 3-7 Year Treasury Bond (NYSEArca: IEI) has seen monthly outflows of $817 million and ProShares Ultra 7-10 Year Treasury (NYSEArca: UST) has experienced outflows of $521 million. [Long-Term Treasury ETF See Outflows as Rates Rise]

Technical analysts are watching a developing “head and shoulders” pattern in TLT, a bearish topping formation. TLT has pulled back close to its 200-day moving average.

“The news media remains fixated on events in Europe. Those fears have permeated and affected investor sentiment for years now. Yet, while the concerns persist, the tale of the tape is telling a different story,” Frederic Ruffy wrote for Schaeffer’s.

“Investors are moving out of safe-haven investments and into riskier assets. By most measures, market volatility is easing.  There is less correlation among individual stocks as more focus shifts to domestic and corporate news rather than fears about another debt debacle in Europe,” he added. “In this environment, the move out of safe-haven investments is in full swing and it might indeed be the right time to follow the smart money trade in TLT today — bet against bonds.”

Inverse ETFs designed to short Treasury bonds include ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT), ProShares UltraShort 7-10 Year Treasury (NYSEArca: PST), ProShares Short 20+ Year Treasury (NYSEArca: TBF) and Direxion Daily 30-Year Treasury Bear 3X (TMV).

iShares Barclays 20+ Year Treasury Bond Fund

Full disclosure: Tom Lydon’s clients own TLT.

The opinions and forecasts expressed herein are solely those of John Spence, 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.

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