Treasury ETFs: The Ultimate Contrarian Trade | ETF Trends

Treasury yields dropped sharply on Friday after a weaker-than-expected report on July new-home sales, pushing long-term bond ETFs into positive territory for the week.

Treasury ETFs are rebounding after a violent sell-off that has pushed bullish sentiment on bonds to the lowest level in over two years.

As a result, U.S. government bond ETFs are set up for a potentially powerful countertrend rally if Treasury yields take a breather after their recent spike.

“The yield on the 10-year Treasury note has shot from 1.63% in early May to a two-year high above 2.90% this week, scaring tens of billions of investor dollars out of bond funds and raising the price of credit across the economy,” writes Michael Santoli for Yahoo Finance.

Treasury yields jumped Wednesday after the release of the minutes from the Federal Reserve’s July meeting. The consensus is that the Fed will begin tapering its bond purchases sometime before the end of 2013. However, yields on the 10-year note fell as low as 2.81% on Friday after the new-home sales data.