Treasury ETF Rally Points to Safety Trade, Deflation Worries | ETF Trends

The recent advance in exchange traded funds indexed to long-term U.S. Treasury bonds is a bad sign for equity investors looking for a Santa Claus rally to end 2011.

The $3.4 billion iShares Barclays 20+ Year Treasury Bond Fund (NYSEArca: TLT) gained nearly 5% last week. Yields on the 30-year Treasury bond have dropped below 2.9% — bond yields and prices move in opposite directions.

The bond ETF’s chart “reflects the ongoing flight to safety,” said Tarquin Coe, technical analyst at Investors Intelligence.

“Trading for the past three months has interestingly consolidated at the highs from the end of 2008. That prior period saw a sharp reversal from current levels,” he wrote in a newsletter Monday. “The present consolidation is taking the form of a triangle, a pattern that is typically a continuation move. Should that prove to be the case then the defensive rotation would extend into the New Year.”

Investors worried about the Eurozone debt crisis and deflation are moving into U.S. Treasuries even though they offer paltry yields.