A stunning rally in U.S. Treasurys, one fueled by the People’s Bank of China’s decision earlier this week to devalue the yuan, is fueling a surge in interest-rate sensitive asset classes while hindering some sector exchange traded funds investors were betting on as beneficiaries of higher interest rates.
Over the past week, 10-year Treasury yields have tumbled almost 6.3%, helping send the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) higher by almost 2% over that period. The Utilities Select Sector SPDR (NYSEArca: XLU), easily the most rate-sensitive of the nine sector SPDR ETFs, has notched a stellar five-day gain of 3.5% and is by the best of the nine SPDRs sicne the start of the third quarter.
Recent data suggest traders have been betting the Fed will boost borrowing costs at its September meeting, but some rate-sensitive asset classes say otherwise. Actually, Treasury yields say otherwise and 10-year yields now reside at multi-month lows, somewhat crimping ETFs tracking sectors positively correlated to rising rates, such as financial services funds. [What These ETFs Say About Rates]
To be fair, the Financial Services Select Sector SPDR (NYSEArca: XLF), the largest financial services ETF, is still up about two-thirds of percent over the past week, but since the start of August, investors have yanked more than $180 million from the fund.
After most of the financial industry revealed quarterly earnings, seven big banks are still trading below their book value, reports Jon C. Ogg for 24/7 Wall St. Book value is an accounting value that tallies the total value of a company’s asset, minus liabilities and intangibles, and compares it to the company’s market value.