U.S. Treasuries tumbled earlier this year after the market predicted an imminent change to Federal Reserve policy. However, investors are taking a second look at bond exchange traded funds as economic strength falters and Fed tapering is pushed to the back burner.
“The idea that we have very strong growth and that they’re trying to have a meaningful reduction in monetary policy accommodation, that hypothesis is looking very damaged,” Dominic Konstam, global head of interest-rate research at Deutsche Bank, said in a Bloomberg article. “The economy isn’t growing as strongly as we’d hoped.”
Treasury bond exchange traded funds, like the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT), are breaking out after Fed tapering speculation pushed yields higher earlier this year – yields and bond prices have an inverse relationship, so an increase in yields corresponds with a decline in prices. TLT has gained 1.6% over the past three months but declined 10.3% year-to-date after yields on 30-year notes climbed from the May low of 2.828% to a peak of 3.902% in August. [Bond ETFs Breaking Out]
However, retail sales and jobs growth stumble. Moreover, the recent government shutdown revealed the country’s ongoing fiscal woes.
“The uncertainty generated by that shutdown is likely to be enough to keep the Fed’s position on tapering on hold for longer,” Jake Lowery, a money manager at ING U.S. Investment Management, said in the article.