Treasury ETFs in Focus on Bernanke, Inflation Data

July 15th at 11:17am by John Spence

Treasury ETFs have been under the gun since the end of April on rising yields. Now, the iShares 20+ Year Treasury Bond Fund (NYSEArca: TLT) is testing a key technical resistance line as investors await testimony from Federal Reserve Chairman Ben Bernanke and CPI data this week.

Bernanke is schedule to testify to Congress on Wednesday and Thursday about the U.S. economy and monetary policy. Investors will be looking for any color on the Fed possibly tapering its bond purchases. Last week, Bernanke said the central bank may keep interest rates near zero even if the unemployment rate falls to its target. [Treasury ETFs Rebound on Bernanke, Lower Yields]

Before Bernanke, June CPI data will be released Tuesday. [Rising Rates and Low Inflation a Toxic Mix For TIPS ETFs]

“In the U.S. attention will like be focused on Ben Bernanke’s mid-year testimony to congressional committees on Wednesday and Thursday. Judging from his recent statements he will be at pains to reassure the public that, even with a timetable for the phase-out of bond purchases, monetary policy will remain very accommodative for a long time to come,” said David Kelly, chief global strategist at JP Moran Funds.

Meanwhile, the CPI data should contain the most important numbers of the week, he added.

“Our forecasts, which show a slightly milder increase than consensus expectations, nevertheless indicate a stabilization in inflation after recent declines,” Kelly wrote in a weekly outlook. “Going forward, there is evidence that gradually tightening labor markets are boosting wage growth while a recent spike in crude oil prices appears to be leading to a surge in recently quiescent gasoline prices. Overall, despite concerns expressed by some Federal Reserve officials, there is little evidence that inflation is sliding towards deflation.”

Treasury yields rose sharply in the second quarter but investors now look to low inflation and slow economic growth to contain to contain the move higher, Bloomberg News reports.

“If you look at inflation, the kryptonite for bond guys, we just don’t see it,” said Jack McIntyre, a money manager at Brandywine Global Investment Management , in the article. “We’ve gone through an adjustment where yields have gone higher. I don’t think yields will go significantly higher.”

“At least one threat to the Fed’s largess continuing—inflation—is well in check. June’s consumer-price index reading, due Tuesday, may rise to 1.6% year over year, from 1.1% two months previously,” The Wall Street Journal reports. “But it is unlikely to go much beyond that in coming months and remains historically low.”

iShares 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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