Safe U.S. government debt and Treasury bond-related exchange funds shine in a volatile market.
Treasury bond ETFs that track government debt securities with long-term maturities have been strengthening as U.S. equities retreated at the start of the new year. The iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT), which has a 17.48 year duration and a 2.67% 30-day SEC yield, was up 3.7% year-to-date. The PIMCO 25+ Year Zero Coupon US Treasury (NYSEArca: ZROZ), which has a 27.4 year duration and a 2.88% 30-day SEC yield, rose 6.6% so far this year. The Vanguard Extended Duration Treasury ETF (NYSEArca: EDV), which has a 24.7 year duration and a 3.96% 30-day SEC yield, gained 5.7%.
“Treasurys are clearly in demand in this risk-off environment,” Justin Lederer, senior trader of interest rates at Cantor Fitzgerald, told the Wall Street Journal. “People are worried about China, oil, stocks…you name it.”
Eric Vanraes, a manager at EI Sturdza Investment Funds with a combined $2.9 billion in assets, sees a buying opportunity in long-term Treasuries every time yields on 30-year Treasury notes crossed above 3.0%, reports Lucy Meakin for Bloomberg.
In the days before we turned over into a new year, 30-year Treasury yields were trading slightly above 3.0%. Long-term Treasury yields currently sit at around 2.892% after concerns about a slowdown in China dragged down markets and fueled safe-haven plays.
“At the beginning of this year we are sure about only one thing – it will be volatile,” Vanraes told Bloomberg. “Every move of the 30-year Treasury yield above 3 percent is a buying opportunity.”
While the Federal Reserve has predicted four interest-rate hikes this year – some, though, are now skeptical about a March change, safe-haven demand could continue to bolster Treasury bonds.
Meanwhile, Vanraes has short positions in U.S. two- and five-year notes at the same time as he is long 30-year Treasuries. Some investors may be less enthusiastic about short-term debt as the Fed gradually raises benchmark rates, and bullish on long-term debt as volatility, slow rate hikes and overseas demand help support U.S. debt on the other end of the yield curve.
Year-to-date, the iShares 1-3 Year Treasury Bond ETF (NYSEArca: SHY), Schwab Short-Term U.S. Treasury ETF (NYSEArca: SCHO) and Vanguard Short-Term Government Bond ETF (NYSEArca: VGSH) have all gained about 0.3%.
iShares 20+ Year Treasury Bond ETF
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.