Despite the low crude oil prices, rising inflation expectations could keep pressure on Treasury bonds and related exchange traded funds.
Over the past month, the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) fell 2.5%, Schwab Intermediate-Term U.S. Treasury ETF (NYSEArca: SCHR) dipped 1.4% and Vanguard Intermediate-Term Government Bond ETF (NYSEArca: VGIT) dropped 1.5%.
Meanwhile, the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) decreased 6.1%, PIMCO 25+ Year Zero Coupon US Treasury (NYSEArca: ZROZ) plummeted 10.1% andVanguard Extended Duration Treasury ETF (NYSEArca: EDV)
While some believed falling crude oil prices would help keep inflation depressed, cheaper energy costs could actually spur consumption and the rising demand for goods could fuel higher prices, Bloomberg reports.
“The economic data are pretty good. Inflation will increase, and the Fed will increase interest rates,” Kim Youngsung, head of overseas investment at South Korea’s Government Employees Pension Service, said in the article.
Crude oil futures plunged 53% in the past year, but snapped its seven-month decline in February, rising 3.2%. Additionally, U.S. economic data revealed that wage growth expanded the most in January since 2008, indicating inflation is set to accelerate.