The S&P 500 is back over 1,400 but recent strength in U.S. Treasury bonds has some questioning the stock rally. For example, yields on the 10-year Treasury note declined to nearly 1.9% earlier this week.
Treasury ETFs have rebounded despite growing calls the multi-decade run in U.S. government debt is ending and that yields have nowhere to go but up.
The iShares Barclays 20+ Year Treasury Bonds (NYSEArca: TLT) is higher over the past month.
The Treasury market is finding support from weaker economic data, more notably slowing personal spending, lower manufacturing activity and more Eurozone problems, reports Cynthia Lin for the Wall Street Journal.
Additionally, investors, who have been burned over the past two years after favorable spring conditions quickly soured, are taking a more cautious approach, hedging gains in stocks with Treasury positions.
“The economic momentum has stalled and investors, looking at what is going on around the world, have tended to retrench back into Treasurys, at least a little longer,” Kevin Giddis, head of fixed income at Raymond James/Morgan Keegan, said in the WSJ article.
Looking ahead, “Operation Twist” will end in June, and the Fed will convene in May to discuss extending or terminating the program.
Additionally, considering inflation levels around the Fed’s target 2% levels, Treasury yields may not go down any further.
“Without inflation expectations falling, it would be tough for 10-years (Treasuries) to rally much further,” Justin Hoogendoorn, fixed income strategist at BMO Capital Markets, said in a Reuters report.
Meanwhile, other safe-haven hedges have not been working out as well. For instance, gold prices remain stuck in the low to mid $1,600 range. The SPDR Gold Shares (NYSEArca: GLD) is down 1.1% over the past month. Gold spot price was $1,662 Monday.
Additionally, the CBOE Volatility Index, or VIX, is still on a down trend, currently trading at 17.3, below its historical average. This suggests more complacency within the stock markets or higher stability with current prices. Consequently, the iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX) is down 5.9% over the past month and the fund has dropped 54.4% year-to-date. [How Rising Rates Could Impact Stock ETFs]
Gary Gordon at ETF Expert thinks Treasury bonds are “seriously overvalued.”
“For the first time since the start of 2008, bonds were the only investments to provide positive returns amid renewed concern the global economy is slowing and as widening deficits in Europe threaten contagion,” Bloomberg News reported this week.
iShares Barclays 20+ Year Treasury Bond
For more information on U.S. Treasuries, visit our Treasury bonds category.
Max Chen contributed to this article.