Only a couple of months ago, investors were putting their faith in stocks. But now, the bears are rearing their heads once more, as evidenced by the surge in Treasury bonds and related exchange traded funds (ETFs). It has led to some of the best performance in Treasuries in years.
Jeffrey Kosnett of Kiplinger reports that the 10-year Treasury note closed at 3.16% on June 22, down from 4.01% on April 5. Back in April, investors were wary of the government’s mounting debt and borrowing needs. The sentiment back then was to stay away from Treasuries. [Is the Treasury Rally For Real?]
In a curious reversal, the U.S. dollar has returned as the preferred currency. Depending on the news, the U.S. economy is either growing or slowing. Currently, the news seems to be dominated by headlines of “slow hiring and tepid corporate spending…[while]banks remain reluctant to lend” – not the type of news equity investors want to hear. [ETFs React to Economic News.]
The market’s bad news has done one thing: given Treasuries their best first half in 15 years, BusinessWeek reports. Check out this yield chart:
Paul Krugman, popular economist and blogger for the NY Times, declared last weekend, “We are…in the early stages of a third depression.”
U.S. Treasuries are considered one of the safest investment vehicles, second only to cash. If Krugman’s dire declaration proves prescient, it would be a good time to move your money from stocks to bonds. But that’s the catch: we can only know for sure in hindsight. [Top 6 ETFs of the Second Quarter.]
If you are unsure, you could try diversifying your money in both stocks and bonds, but use ETFs to invest in each. Employing ETF Trend’s 200-day moving average strategy, you could then position your portfolio to limit the downside risk of equities. That way, Krugman’s words won’t keep you up at night.
For more stories on Treasuries, visit our Treasury category.
- PIMCO 25+ Year Zero Coupon U.S. Treasury Index (NYSEArca: ZROZ): up 26.6% in the second quarter
- Vanguard Extended Duration Treasury (NYSEArca: EDV): up 24.5% in the second quarter
- iShares Barclays 20+ Year Treasury Bond (NYSEArca: TLT): up 14.9% in the second quarter
- SPDR Barclays Capital Long-Term Treasury (NYSEArca: TLO): up 11.9% in the second quarter
- iShares Barclays 10-20 Year Treasury Bond (NYSEArca: TLH): up 9.7% in the second quarter
- PowerShares 1-30 Treasury Ladder (NYSEArca: PLW): up 9.3% in the second quarter
Sumin Kim 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.