Exchange traded funds tracking the U.S. dollar and Treasury bonds have advanced this week as investors seek shelter from a slowing global economy, volatility in equities and problems in Eurozone banks.
PowerShares US Dollar Index Bullish (NYSEArca: UUP) and iShares Barclays 7-10 Year Treasury Bond Fund (NYSEArca: IEF) are among the ETFs that have benefited from the flight to safety.
The U.S. dollar has experienced the most gains in over two weeks, appreciating against six major foreign currencies, as investors once again sought refuge in U.S. securities, reports Allison Bennett for Bloomberg. The Dollar Index rose as much as 1% during Thursday trading, the largest intraday increase since Aug. 4. [Treasury ETFs Jump as 10-Year Yields Fall Below 2%]
Meanwhile, yields on five-, seven- and 10-year Treasury notes hit record lows as Treasuries prices continued to increase for the third day. U.S. government debt is on course for its best monthly performance since December 2008. Yields on the benchmark 10-year note briefly fell below 2% on Thursday.
“We’re seeing very strong demand for Treasuries and you need to convert to dollars to buy Treasuries, so that should be supportive of the dollar,” remarked Eric Viloria, senior currency strategist at Gain Capital Group LLC.
Fitch Ratings stated that due to the dollar’s position as the global reserve currency, the U.S. government is able to take on more debt than other triple-A rated countries.
“The Treasury market is the deepest and most liquid in the world, so when managers from all around the world are looking for funds and look to move from equities to bonds, part of the pickup there is Treasuries,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia.