With the Eurozone preparing its monetary repertoire to stave off a deflationary environment, the markets turned risk-off Wednesday on the economic uncertainty, pushing up Treasury bond exchange traded fund prices and pulling down benchmark 10-year yields to six-month lows.
The iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) continued its rally Wednesday, rising 0.5%. IEF has increased 4.4% year-to-date.
The European Central Bank is preparing some options for its June meeting, such as cuts in all its interest rates and increased lending to small- and mid-sized firms, reports Karen Brettell for Reuters.
“The only reason that the Treasury market is bid this morning is a series of shifting expectations for European monetary policy,” Ian Lyngen, a senior government bond strategist at CRT Capital, said in the Reuters article.
The benchmark 10-year Treasury yield declined 9 basis points Wednesday to around 2.53%, the lowest since last October.
Technical positioning also helped support gains in Treasury bonds. Specifically, the benchmark yield traded between 2.6% and 2.8% for most of the year, but yields dipped below that level and tested a 200-day moving average Wednesday, which fueled a round of short-covering, reports Ben Eisen for MarketWatch.
With the continued strengthen in the Treasuries market, short sellers have been forced to close out their bearish calls and buy into the market.
“The reversal is pretty brutal. We’ve got to really see an end of this bearish sentiment on Treasurys before we have a selloff,” George Goncalves, head of interest-rate strategy at Nomura Securities, said in the MarketWatch article, projecting that Treasury yields will continue dip until short positions are fully exited.
Treasury bonds have been among the best performing assets this year. The long-term iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) has increased 10.8% year-to-date as yields on 30-Year Treasuries declined almost 60 basis points since the start of the year. [Renewed Demand for Treasuries Props Up Bond ETFs]
iShares 7-10 Year Treasury Bond ETF
For more information on the Treasuries market, visit our Treasury bonds category.