With almost half of the world government bonds yields below 1%, U.S. Treasury bonds and U.S. dollar exchange traded funds could continue to pick up as the economy expands.
“The bond market is in a fix now,” John Anderson, a portfolio manager at Smith & Williamson Investment Management, said in a Bloomberg article. “If U.S. growth does pick up, current low yields will look unsustainable. But euro-zone deflation could mean any correction could be a long way off. We stay long Treasuries and the dollar for the time being.”
Investors who are interested in staying long U.S. Treasuries and the U.S. dollar can stick to the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) and PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP). [Treasury ETFs Soar in August]
IEF tracks a basket of intermediate-term U.S. Treasury bonds, with a 7.72 year effective duration and a 2.10% 30-day SEC yield. UUP follows the value of the U.S. dollar relative to a basket of the six major world currencies – the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.
About 45% of all government bond yields less than 1%, according to Bank of America. For instance, benchmark 10-year German bund yields are at 0.97% and 10-year Japanese government bond yields are at 0.53%.
In comparison, yields on benchmark 10-year Treasuries are hovering around 2.45%.