Fixed income exchange traded funds (ETFs) are of interest in these uncertain times as investors make a flight to quality in treasuries.
Murray Coleman of Index Universe talks to bond executive Matthew Tucker for Barclays’ fixed income arena.
Tucker says the steepening of the yield curve is a sign of investors migrating to safer, short-term securities.
The spread difference between 2- and 10-year Treasuries has gone from about .15% at the beginning of September to around .20%, a common sight when signs of a troubled economy show.
Since fixed-income ETFs trade on exchanges, it should be noted that they’re providing an additional source of liquidity for some investors who now have limited access to bond markets. ETFs are serving as price-discovery vehicles in these markets. The drop in liquidity is evident in the fixed income market right now, along with a drop in volume.
Even in the current bond market there is a reduced amount of individual stocks being traded. Intraday ETF prices are actually filling that gap.
International bond markets are also impacted right now, as the spreads in these funds are widening. The Treasury market is also being affected likewise with widening spreads.
- iShares Lehman 20+Year Treasury Bond Index Fund (TLT), up 6.5% year-to-date (black line)
- iShares Lehman 1-3 Year Treasury Bond (SHY), up 4.6% year-to-date (green line)
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.