Treasury ETFs Rebound on Bernanke, Lower Yields

July 12th at 2:31pm by Tom Lydon

Fed chief Ben Bernanke helped take some of the pressure off Treasury bond ETFs this week with comments the central bank will keep interest rates near zero even if the job market improves. It remains to be seen, however, whether this is just a temporary break as yields cooled a bit this week after their recent spike.

The iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) is on track for a weekly gain of more than 1%.

The benchmark 10-year Treasury bond yield dipped to 2.57%, down 11 basis points Thursday, and is approaching its biggest weekly drop in over a year. The lower short-term interest rate futures indicated that traders were reducing their expectations on a Fed rate hike next year, reports Richard Leong for Reuters.

Moreover, an unexpected rise in U.S. jobless claims in the latest week also added to demand for safe-haven Treasuries.

“Right now we are oversold. We are seeing some buying coming back,” Ellis Phifer, senior market analyst at Raymond James.

Treasuries and the fixed-income market has beaten over the past few months on speculation that the Fed will begin “tapering” its quantitative easing program sooner rather than later. [Treasury ETF Lowest Since Aug 2011 on Fed Taper Talk]

However, the Fed’s softer stance has soothed concerns over Treasury and mortgage-backed securities, along with monetary policy and short-term interest rates.

“The Fed had to do something,” Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets, said in a Bloomberg article. “They didn’t want anything to upset the applecart of the economic gains they have made. The market appears to be holding its gains.”

iShares 20+ Year Treasury Bond ETF

For more information on Treasuries, visit our Treasury bonds category.

Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own TLT.

The opinions and forecasts expressed herein are solely those of Tom Lydon, 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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