Investors have been flocking to long-term Treasuries and related exchange traded funds (ETFs) as a haven from the uncertainties of the euro debt crisis. As a result, long-term Treasuries have outperformed all other fixed-income securities for the year. But can the rally be sustained?
According to Min Zeng of The Wall Street Journal, long-term Treasuries posted an 8.72% return this year through Thursday, reversing last year’s 21.4% loss. Mid-term Treasuries maturing in 10 to 20 years gained 7.36% after losing 8.12% last year.
Van Hoisington of Hoisington Investment Management Co. said, “Long-dated Treasuries are my favorite.” [Picking and Choosing From Treasury ETFs.]
Fears about the euro debt crisis and the effects it will have on global economic growth have helped buoy Treasuries. In addition, the United State’s “high unemployment rate and the still high level of unused capacity in the economy overall” has cooled fears of inflation for the time being. [Corporate Bond ETFs in Favor.]
In the first quarter, belief in a sustainable economic recovery led to more equity investments and fueled fears of inflation, resulting in the 10-year note’s yield breaking above 4% for the first time since October 2008.
By late April, that momentum was shattered in the wake of the euro zone fiscal fallout. Investors poured money into U.S. government debt, pushing yields to 3.059%, the lowest since April 2009. [What You Should Know About Bond ETFs.]