Treasuries and bond-related exchange traded funds advanced Wednesday as benchmark yields tumbled to their lowest since October.
On Wednesday, the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) rose 0.5%, Schwab Intermediate-Term U.S. Treasury ETF (NYSEArca: SCHR) was 0.3% higher, Vanguard Intermediate-Term Government Bond ETF (NYSEArca: VGIT) was up 0.3% and SPDR Barclays Intermediate Term Treasury ETF (NYSEArca: ITE) gained 0.2% as yields on 10-year Treasury bonds fell to 1.99% and briefly touched 1.95% earlier in the day, the lowest since October 2.
Treasury bonds have been rallying as market volatility and the sell-off in global equities pushed investors to safe-haven assets. Year-to-date, IEF rose 2.1%, SCHR gained 1.5%, VGIT increased 1.4% and ITE was 0.5% higher.
Treasury yields pushed lower after a collapse in crude oil prices triggered panic selling in the markets and depressed the inflation outlook, which further bolstered debt assets on improved real yields. A bond-market gauge of inflation expectations, known as the 10-year break-even rate, fell to the least since 2009, Bloomberg reports. [Energy ETFs Plunge as Crude Oil Slips to 12-Year Low ]
The consumer-price index declined 0.1% last month. Excluding food and fuel, the so-called core index was 0.1% higher, less than expected and the smallest rise in four months. Low inflation means that the real yield, or yield after accounting for inflation, is more attractive for fixed-income assets.
Additionally, U.S. debt gained on speculation that the Federal Reserve will struggle to meet its own interest rate hike forecast for the year.
“With most risky assets under pressure and volatility at its highest level since last September, investors continue to flock to the safety of government bonds,” Russ Koesterich, the global chief investment strategist for BlackRock Inc., said in a research note.
Even if the markets rebound and volatility abates, Treasury bonds may still find support from global investors seeking more attractive yields. For instance, yields on 10-year German bunds is 0.48% and yields on 10-year Japanese government bonds is 0.21%.
iShares 7-10 Year Treasury Bond ETF
Max Chen contributed to this article.