Investors often watch exchange traded funds following the U.S. dollar and CBOE Volatility Index futures to get a sense for whether markets are in a risk-on or risk-off mood.
U.S. Treasury bond ETFs can also provide clues on the market’s level of risk aversion and Europe-related fear.
Treasury prices tend to have an inverse relationship with stocks as investors tend to move into U.S. government bonds during financial market shocks.
With 10-year Treasury note yields hammered below 2% this fall, deflation fears still stalk the market. Bond prices and yields move in opposite directions.
Of course, the question is how much lower can yields go from here?
Some institutional investors are making large bets that yields will rise by purchasing inverse Treasury ETFs. [ETF Chart of the Day: Shorting Treasuries]
The iShares Barclays 20 Year Treasury Bond Fund (NYSEArca: TLT) was trading Friday even though the U.S. bond market was closed for Veterans Day. It’s on track for a slight loss this week.
“We are seeing outflows via redemptions in iShares Barclays 20+ Year Treasury (NYSEArca: TLT) this week, with over $300 million flowing out of the fund, which is not an insignificant amount of the overall assets in the ETF (approximately 10% of its assets under management),” wrote Paul Weisbruch at Street One Financial in a note Friday.
iShares Barclays 20+ Year Treasury
Tisha Guerrero contributed to this article.