Deficit Fears Hold Back ETFs Early | ETF Trends

Exchange traded funds (ETFs) are moderately flat in early trading on Wednesday as Treasury notes fell and the dollar gained on thinking the tax-cut deal would strengthen the economy. Bond traders are still concerned about how the European debt crisis will be resolved and Asian stocks are down on worries about the impact of a possible interest rate increase in the region.

  • The Associated Press reports that investors are analyzing the tax cut proposal backed by President Obama and Republicans in Congress. Most analysts expect the tax-cut deal to boost economic growth but also widen the budget deficit. Estimates of the plan’s cost range as high as $900 billion over the next few years. Treasury prices are dropping in early Wednesday trading, sending their yields higher for a second straight day. The yield on the 10-year Treasury note rose to 3.18%, the highest level since June. ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT) is up 1% this morning, benefiting from the losses in Treasuries.
  • The impact of U.S. tax cuts is being felt around the world, including in Germany where the yield on 10-year bunds spiked Wednesday above 3%for the first time since mid-May in the immediate aftermath of the bailout of Greece. Developments in the bond markets over the last couple of days have highlighted that debt levels are historically high all around the world after governments loosened the purse strings to deal with the global financial crisis and the ensuing recession – reported by the Associated Press. SPDR Barclays Capital International Treasury (NYSEArca: BWX) is down nearly 1% today in response to the developments.
  • Asian stocks sank, with Chinese and Hong Kong shares falling on worries an interest-rate increase could be coming over the weekend. South Korean stocks were hurt by renewed geopolitical tensions, while Japanese shares advanced as exporters drew support from a weakened yen. The Seoul market erased early gains to finish lower after media reports cited a South Korean military official as saying that North Korea conducted what appeared to be artillery drills, with the Associated Press reporting that shells fired from the North landed in the country’s own waters, reports MarketWatch. iShares S&P Asia 50 (NYSEArca: AIA) is down 1% this morning.

Gregory A. Clay 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.