What Inflation Fears Mean for Treasury ETFs | ETF Trends

Now, is it going to be deflation or inflation? That’s the million-dollar question. We have been hearing about the ongoing debate and we should have a exchange traded fund (ETF) or other investment strategy in place.

In the Treasury bond market, yields edged up again on Tuesday to reach a new six-month high, reports Tom Petruno  for The Los Angeles Times.

The United States’ $26 billion auction of seven-year Treasury notes, however, went better than feared. Interest from indirect bidders, domestic and foreign institutions was around 33%, in line with the last seven-year sale, said Geoffrey Rogow and Peter A. McKay for The Wall Street Journal.

This has somewhat abated fears that investors were abandoning Treasuries because they’re feeling better about the economy and buying high-risk assets such as junk bonds, commodities and foreign currencies.

But as inflation fears continue to mount, there are two ways of dealing with our current dilemma: The Fed could start reducing the money supply to increase interest rates, but this is rather unlikely since Federal Reserve Chairman Ben Bernanke has insisted on a need to keep short-term interest rates low.