Treasury exchange traded funds plunged Tuesday while key bank stocks Citigroup (NYSE: C) and Bank of America (NYSE: BAC) capped gains in financial ETFs despite the rally in stocks.

The iShares Barclays 20+ Year Treasury Bond (NYSEArca: TLT) dropped 1.5% on Tuesday. Fed chief Ben Bernanke in a speech acknowledged tough steps are needed on spending and the deficit, but asked politicians to raise the debt ceiling.

Many high-profile investors including Pimco’s Bill Gross are bearish on U.S. Treasury bonds after the multidecade run. They point to the U.S. debt and spending, and see an oversupply of Treasury bonds coming onto the market. Furthermore, rates are already very low.

Also Tuesday, some large-cap banks were noticeably absent from the rally. Financial and bank ETFs lagged stocks’ sharp move higher. Capital One (NYSE: COF) fell over 3%.

The Dow jumped more than 100 points on Tuesday while a pullback in volatility-linked ETFs suggests investors’ fears are easing after six straight weeks of stock losses. [VIX ETFs Plummet]

iShares Barclays 20+ Year Treasury

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