Even the ETF’s sponsor, BlackRock unit iShares, is warning about potential trouble in Treasury bonds.
Russ Koesterich, iShares Global Chief Investment Strategist, in a blog this week wrote negotiations in Washington over the debt ceiling will likely end with something similar to the 2011 budget deal.
Therefore, fears of default are exaggerated but large deficit spending is likely to continue, bringing a continuation of the large supply of Treasury debt. However, the inflation-adjusted yield on the 10-year note is well below the 60-year average, the strategist noted.
“In other words, at a time when deficits will likely ensure record supplies of new Treasury instruments, the price of longer dated Treasury instruments is at a record high,” Koesterich wrote. “As such, we continue to believe the U.S. Treasury market offers little value and would remain underweight TLT and other long-term Treasury funds over the long-term.”
Yet there are some fundamental reasons Treasury prices could rise and push yields down further. First, bonds would be attractive in a deflationary environment if the global economy falters badly. Another wild card is the debt crisis in Europe. If it flares up, investors could seek the safety of U.S. Treasuries.
iShares Barclays 20+ Year Treasury Bond Fund
