When it comes to investing in stocks, bonds and exchange traded funds (ETFs), all investors should watch the Treasuries market and for good reason.

Stocks and bonds are two completely different areas of the market. One (stocks) gives investors exposure to risk while the other (bonds) is relatively safe.  Why should investors who want absolutely nothing to do with the bond market keep an eye on Treasuries? Matt Krantz of USA Today states that Treasury prices are so important because they put a floor under investment expectations because of their safety characteristics.

Watching the yields on Treasuries gives investors an indication of how other investors are feeling about the overall markets.  If investors are flocking to Treasuries, which drives yields down, it’s a signal of fear in the markets.

Treasury yields also enable investors to identify a required rate of return.  For example, if the yield on a Treasury, a relatively riskless investment, is 3.5%, then one would need to require a return on investment greater than this to take on any risk.

Among the many Treasury ETFs investors can look at are the following:

  • iShares Lehman 7-10 Yr Treasury Bond Fund (NYSEArca IEF)
  • Vanguard Extended Duration Treasury ETF (NYSEArca EDV)

For more stories on Treasuries, visit our Treasury category.

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.