Stocks advanced Wednesday but Treasury exchange traded funds were all over the map as investors debated the likelihood of further “quantitative easing” from the Federal Reserve due to a slowdown in the U.S. economy and discouraging data recently on unemployment.
The minutes of the latest Fed meeting released Tuesday showed some members would be receptive to changes in monetary policy if the economy worsens. [Gold ETFs Near Lifetime Highs After Fed Minutes, Ireland Downgrade]
On Wednesday, Fed chairman Ben Bernanke reiterated the central bank stands ready to provide further support to financial markets. [Stock, Metals ETFs Surge as Bernanke Hints at Further Stimulus]
ETFs that invest in Treasury bonds fell in late June as the Fed’s second round of quantitative easing program, or “QE2,” expired. However, U.S. government debt has rallied so far this month on Eurozone worries and as investors search out safe havens. [Third Quarter Outlook: Life After QE]
The iShares Barclays 20+ Year Treasury Bond (NYSEArca: TLT) fell over 1% Wednesday morning as Bernanke testified before Congress but had pared almost the entire loss in afternoon trading. Stock ETFs were in a happier mood as the Dow gained nearly 100 points.
Bill Gross, manager of the giant Pimco Total Return Fund, on Wednesday told CNBC the fund has increased its stake in Treasuries to about 8% from roughly 5%, but the move isn’t a backing of U.S. government debt.
The position is essentially in Treasuries with a duration of two to three years. That’s because 3-month and 6-month Treasury bills are yielding close to zero, Gross explained. Yields on the 3-year note are around 0.65%.
“So rather than getting nothing, we prefer to move into a two to three-year space and get … something for our clients,” Gross told CNBC. “But it’s not an endorsement for Treasuries. They have been more of an insurance policy than an investment. When Europe heads downhill or U.S. unemployment signals slow growth, they rally as a safe haven.”
However, Treasury yields are so low that it will be difficult for investors to meet their goals, Gross said. Bond yields and prices move in opposite directions.
Pimco is planning an ETF version of Total Return Fund. [Pimco Readies ETF]
iShares Barclays 20+ Year Treasury Bond
