Treasury ETF Lowest Since Aug 2011 on Fed Taper Talk

July 5th at 9:38am by John Spence

A popular ETF tracking long-term Treasury bonds fell to its lowest since August 2011 on Friday as the stronger-than-expected employment report for June triggered speculation the Federal Reserve will pull back on quantitative easing.

The iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) was down 2.5% in early trading Friday as yields on the 10-year note touched 2.7% for the first time in nearly two years. Bond prices and yields move in opposite directions.

The U.S. economy created 195,000 new jobs last month, more than expected, while the April and May figures were revised higher.

Yields on the 10-year Treasury note rose the most since October 2011 as investors positioned for the Fed to reduce the size of its asset purchases, Bloomberg News reports.

“Expectations for a September taper are being completely priced in,” said Shyam Rajan, interest-rate strategist at Bank of America Merrill Lynch, in the article. “The market’s expecting a smaller balance sheet going forward.”

“It’s a good number — it doesn’t hurt the tapering camp,” added Sean Murphy, a trader at Societe Generale. [Treasury, Gold ETFs Tank After Jobs Report as Dollar Spikes]

Fed chief Ben Bernanke has indicated the central bank could begin tapering its bond purchases as early as this year if the economy and labor market improve. The Fed has been buying $85 billion worth of bonds a month to help stimulate the economy and keep interest rates low.

Economists polled by MarketWatch had projected 155,000 new jobs in June. “Tapering is in store, and we think the September call and $15-20 billion to start with is about right,” said David Ader, head of government bond strategy at CRT Capital Group, in a report.

“The strong advance in the employment count provides support for the Federal Reserve to start to taper back on its quantitative easing in the near future,” said Kathy Bostjancic, director of macroeconomic analysis at the Conference Board, in a Reuters story.

iShares 20+ Year Treasury Bond ETF

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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