U.S. Treasury exchange traded funds, last year’s hottest ETF investment, tumbled on the first trading session of 2012 as bond prices pulled back and yields on the 10-year note climbed toward 2%.
As I explained to Seeking Alpha in a 2012 outlook, I’m not a big fan of Treasuries with yields so low and inflation a real threat to bond investors, among other headwinds.
It seems few investors and advisors are prepared for rising interest rates, and for fixed-income portfolios, I like corporate and emerging market debt much more than U.S. Treasuries. [Five ETF Trends to Watch in 2012]
In a weekly outlook published Tuesday, JP Morgan Funds chief market strategist David Kelly calls out some interesting data points on U.S. stocks and Treasuries for 2011:
- S&P 500 operating earnings rose by roughly 17%,
- 10-year Treasury yields fell from 3.3% to 1.9%
- Core inflation rose from 0.7% year-over-year to 2.2%
- Investors pulled over $120 billion from equity funds and added over $130 billion to their holdings of bond funds
“With the stock market flat for the year, the valuation pendulum, already at an extreme, stretched to an even greater extreme, with stocks looking extremely cheap relative to Treasuries at the start of 2012,” he wrote, and I can’t disagree.