Why Current Environment Is Affecting Treasury Yields and ETFs | ETF Trends

Signs of rising inflation, subdued volatility in the Middle East, moves by Japanese traders, and PIMCOs retreat from Treasuries have all contributed to Treasury prices and their related exchange traded funds (ETFs).

Last Friday, Treasury prices dropped lower with yields rising above the lowest levels since January, reports Deborah Levine for MarketWatch. Initially, U.S. bonds gained after the earthquake in Japan, but the safe haven move reversed as Japanese investors went back into yen and out of other assets – Japanese investors are the third-largest holders of U.S. Treasury debt.

Long-term Treasuries were hardest hit as Japanese investors repatriated their money, writes Katy Burne for The Wall Street Journal. It is speculated that the Japanese may continue to sell in coming sessions in preparation for paying insurance claims. Additionally, March is typically the time when Japanese companies start moving money back home.

After plans for a “day of rage” was calmer than expected, traders reversed their bets that bond prices would fall further if protests would influence a flight to safety. [ETFs React To Saudi Unrest.]

Additionally, Treasuries took a hit on reports of dropping consumer sentiment in March and increased concern over inflation – rising inflation raises the risk that increasing prices will eat away at the value of fixed-debt payments.

Last month, PIMCO fund manager, Bill Gross showed his belief that bond prices would fall and yields rise by exiting Treasuries all together.

  • PIMCO 1-3 Year Treasury Index Fund (NYSEArca: TUZ)
  • iShares Barclays 3-7 Year Treasury Bond Fund (NYSEArca: IEI)
  • iShares Barclays 7-10 Year Treasury Bond Fund (NYSEArca: IEF)

For more information on Treasury bonds, visit our Treasury bonds 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.