The global economy is not doing so well, and people who have been hurt by the recent volatility in the stock market and exchange traded funds (ETFs) opted to invest in the relative safety of government bonds. Further fueling the demand for Treasuries, the Fed is now buying in bulk.
On Monday, the 10-year Treasury yields hit a new 16-month low of 2.58% and the 2-year Treasury note dropped to a record low of 0.49%, reports Tom Petruno for The Los Angeles Times. Bond dealers on Wall Street project that the median year-end forecast for the 10-year T-note will be 2.88%. [Treasury ETFs Lifted As Homebuilders Stay Gloomy.]
The ETF Analyzer shows that there are 116 fixed-income ETFs, 29 of which are Treasury bond funds. Sorting by yield, the best one going right now is in the PIMCO 25+ Year Zero Coupon U.S. Treasury (NYSEArca: ZROZ), which yields 4.1%. Some of the other higher-yielding Treasury ETFs include:
- Vanguard Extended Duration Treasury (NYSEArca: EDV): yields 3.7%
- SPDR Barclays Capital Long-Term Treasury (NYSEArca: TLO): yields 3.7%
- iShares Barclays 20+ Year Treas Bond (NYSEArca: TLT): yields 3.7%
- iShares Barclays 10-20 Year Treasury Bd (NYSEArca: TLH): yields 3.3%
Could that rush be coming at a cost? Some think so. [Bond ETF 101: Not As Simple As They Seem.]
Peter Atwater for Minyanville believes that we are in the midst of a bond bubble. Corporate America is currently on a hoarding spree, issuing bonds and watching the cash pile up. Meanwhile, the Federal Reserve is enabling the Treasuries market. The point Atwater makes is that there is currently too much cash floating around with no plan to put that money back into sustainable growth.
A while back, Federal Reserve Governor Kevin Warsh cautioned that people should get out of bonds and into stocks or prepare to get rolled over when interest hikes kick in, writes Peter Atwater for Minyanville.
Bond investors should be ready to act when interest rates rise, though this doesn’t seem like anything that’s imminent. Short-term bond funds won’t be as hard hit when it happens.
For more information on the bond market, visit our bond category.
Max Chen 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.