U.S. Treasury bond exchange traded funds rose Monday while stocks weakened on reports the congressional “supercommittee” has been unable to put a deal together on reducing the U.S. deficit before a key deadline.
Europe’s lingering debt crisis is also pushing Treasury ETFs higher. In an attempt to safeguard assets, investors have sought refuge in U.S. Treasuries.
The iShares Barclays 20+ Year Treasury Bond (NYSEArca: TLT) rose 0.8% in Monday’s premarket.
Yields on the 10-year note were trading below 2% on Monday. Bond prices and yields move in opposite directions.
Following reports of the supercommittee’s failure, the biggest rally in U.S. government debt since 2008 shows no signs of slowing even though yields are roughly the lowest on record, Bloomberg reported Monday.
“It’s the contagion factor that’s still bothering the market,” Paul Horrmann, a broker at Tradition Asiel Securities Inc., said in a separate Bloomberg report. “You’ve got Europe and the question is whether this is just something they can snuff out and put to bed, or is it really going to ripple into a major problem.”
U.S. Treasuries have been the go-to asset during any signs of global economic uncertainty as it is the largest and most liquid market.
Due to the increasing demand, yields on 10-year notes hit a 1.67% low in September and habr only traded as high as 2.67% for the year back in April when the risk of a Greek default had yet to surface. Meanwhile, short term bond yields have briefly traded into negative territory during the height of volatility in late summer. [Treasury ETFs Catch Bid on Safety Trade]
According to government data, foreign holdings of Treasuries rose to a record $4.66 trillion in September. China, the largest foreign holder of U.S. sovereign debt, raised its holdings of long-term notes and bonds by $20.7 billion, or 1.8%, to $1.14 trillion in September. Japan, the second largest foreign holder, increased its holdings by 2.2% to $956.8 billion. [Treasury ETFs and the Supercommittee Deadline]
According to the National Stock Exchange, fixed-income long ETFs garnered $33.5 billion in new net assets in the first 10 months of the year, around 33% of total net inflows for all ETFs.
The rally in Treasuries has gone against traders who positioned for rising yields with inverse bond ETFs. [Traders See Yields Rising]
iShares Barclays 20+ Year Treasury Bond
For more information on the Treasuries market, visit our U.S. Treasuries category.
Max Chen contributed to this article.