The short- and long-term moving averages on benchmark 10-year Treasury yields has converged in a so-called Death Cross, potentially signalling continued bullishness in bond exchange traded funds and more weakness in the equities market.
The iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) is up 5.9% year-to-date while broad bond funds such as the Vanguard Total Bond Market ETF (NYSEArca: BND) and iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG), which both include a diversified selection of U.S. Treasuries, mortgage-backed securities, agencies, and corporate bonds, are up 4.0% and 3.9%, respectively. [Treasury Bond ETFs Don’t Look Frothy]
Over the past month, IEF gained 1.5%, BND rose 0.8% and AGG increased 0.7%. In contrast, the S&P 500 index was down 3.1%.
Some observers argue that the current risk-off environment can be traced back to the Death Cross formation in the 10-year Treasury yield a while back, reports Jeff Cox for CNBC.
The benchmark yield’s 50-day moving average crossed below its 200-day trend, a move technical analysts believe indicates a significant bearish turn in sentiment that could lead to further weakness. However, in the case of the 10-year yield, the move is really a bullish indicator for fixed-income assets since yields and the bond price have an inverse relationship. Consequently, a bearish outlook on yields is a positive for bond prices.
Yields on 10-year Treasuries are now back down to 2.42%, compared to starting out the year at around 3.0%.