Some exchange traded funds holding longer-dated U.S. Treasuries, not often an asset class associated with volatility, are experiencing an uptick in volatility as some traders prepare for interest rate hikes from the Federal Reserve.
“Implied volatility on the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT)ast week touched the highest since August 2013 compared with the SPDR S&P 500 ETF (NYSEArca: SPY), reports Joseph Ciolli for Bloomberg. Since the start of this year, the cost of TLT options has only exceeded comparable contracts on SPY, the world’s largest ETF, a third of the time, according to Bloomberg.
Despite the increased cost of hedging long positions in TLT and the higher volatility, the ETF has added over $279 million in new assets this month. Led by the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF), Treasury ETFs were among the leading asset gatherers last month. In August, IEF added $1.47 billion in new assets while TLT gained almost $565 million. [Bond ETFs Lead August Inflows]
Increased volatility in TLT comes despite the fact that 10-year Treasury yields have dipped 17.3% this year, prompting investors to scamper into bond ETFs. Three bond ETFs – IEF, theVanguard Total Bond Market ETF (NYSEArca: BND) and the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG) – are among this year’s top-10 ETFs in terms of inflows.
TLT dropped 2% last week, its biggest weekly move in 10 months, according to Bloomberg. The aforementioned drop in Treasury yields has helped TLT climb 13.3% this year, a performance that tops SPY’s year-to-date gain by about 370 basis points. Last month, Treasury ETFs posted their best monthly performance since January. [Treasury ETFs on Fire in August]