Treasury exchange traded funds (ETFs) have become a favorite safe-haven as investors look to protect their assets, but it’s been pushing already paltry yields down to almost nothing.
On the five-year Treasury, there’s a 1.76% return, while today the yield on the 10-year declined to 2.99%. [What Providers are Bullish on T-notes?]
A search on our ETF Analyzer finds 29 Treasury bonds of various types – long, short, leveraged, inverse. When we sort by yield, the results reveal yields that are better than what the individual bonds are giving out:
- PIMCO 25+ Year Zero Coupon U.S. Treasury (NYSEArca: ZROZ): yield 4.4%
- Vanguard Extended Duration Treasury (NYSEArca: EDV): yield 3.9%
- SPDR Barclays Capital Long-Term Treasury (NYSEARca: TLO): yield 3.8%
- iShares Barclays 20 Year Treasury (NYSEArca: TLT): yield 3.7%
The argument for owning Treasury bonds is that the economic recovery may be slow going at best. But even in that environment, the protection may be short-lived. Investors have rushed to buy Treasury securities since late April, in the process driving market yields on the bonds sharply lower.
Tom Petruno for The Los Angeles Times reports that fiscal tightening makes it more likely that the Federal Reserve and the European Central Bank, among others, will keep short-term interest rates near rock-bottom for longer. This is presenting a fertile environment for investors and providers to offer and seek out Treasury bond funds.
But be careful – when rates go up, long-term bonds will get hit. Be prepared and ready to act accordingly.
For more stories about Treasury Bonds, visit our Treasury bond ETF category.
Tisha Guerrero 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.