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.