Long-term Treasury bond exchange traded funds are finally turning around as the weaker outlook on inflation and global growth help bring investors back.
The Vanguard Extended Duration Treasury ETF (NYSEArca: EDV) was up 7.8% Friday while the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) was 1.0% higher. Over the past month, EDV has declined 3.6% and TLT dropped 2.7%.
Yields on 30-year Treasuries have increased to 3.30% from 3.22% over the past month.
With inflation expectations down, long-term Treasuries provide a more attractive real rate of return, or the yield adjusted for change due to inflation.
“There’s no inflation on the horizon and you can extend out and pick up some yield,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets said in a Bloomberg article.
According to the Labor Department, the consumer price index decreased 0.2% over August, the first decline since April 2013. [TIPS ETFs Won’t Find Support From Falling Inflation]
The low inflationary pressures are reviving fears of a potential deflationary environment, which would discourage consumers and businesses from spending over the short-term.
Moreover, Treasuries are also strengthening as European investors turn to the more attractive yields in the U.S., with the yield spread between the benchmark U.S. 10-year Treasury notes over Germany’s 10-year bunds was almost at its widest in 15 years.