As many investors are wary of what exactly the swine flu is and what affect it will have on stocks, exchange traded funds (ETFs) and the overall global economy, they are fleeing to safe havens.
One such haven that has seen a surge is the Treasury market. The U.S. Treasury Department auctioned $40 billion in 2-year notes on Monday, followed by $35 billion in 5-year notes on Tuesday and $26 billion in 7-year notes on Wednesday, reports Ben Rooney of CNN Money.
This is a whopping $101 billion in Treasuries that are set to sell in one week, in addition to the $57 billion in Treasury bills expected to be sold. To make these numbers even more eye opening, the May refunding will hit next week, where the Treasury expected to sell another $200 billion in Treasury notes and bonds.
To top it all off, some analysts even said that the Treasury would announce plans to launch and offer a 50-year bond, which would be the longest maturity ever issued by the United States, states Deborah Levine of Market Watch. This just a rumor that has been floating around Wall Street and many believe that the Treasury will just sell more of its 30-year bonds.
This is all fine and dandy as long as the demand for U.S. debt remains robust. Some strategists fear that the federal government is going to flood the market with excess supply forcing prices to plummet. Others believe that the Treasury market is in a bubble and as economies recover interest rates will most likely increase causing a burst in the bubble. Short-term Treasury bills are generally one of the safest investment tools, which is why investors scurry to them whenever they’re unsure.
If you want to grab exposure to the bond market, we think that ETFs are the way to go. After all, there are about 15 different ETFs with holdings in U.S. Treasuries.
- iShares Lehman 7-10 Yr Treasury Bond Fund (IEF): down 3.4% year-to-date; yields 3.7%
- iShares Lehman TIPS Bond Fund (TIP): up 2.6% year-to-date; yields 3.5%
Kevin Grewal contributed to this article.
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.