BlackRock’s (NYSE: BLK) iShares unit, the world’s largest issuer of exchange traded funds, and Intercontinental Exchange (NYSE: ICE) said Friday four iShares fixed income ETFs will transition to Interactive Data Pricing and Reference Data indexes. Interactive Data Pricing and Reference Data is a unit of Intercontinental Exchange.
The four iShares ETFs moving to Interactive Data Pricing and Reference Data indexes are the iShares 1-3 Year Treasury Bond ETF (NYSEArca: SHY), iShares 3-7 Year Treasury Bond ETF (NYSEArca: IEI), iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) and the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT).
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.
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.
Demand for fixed income data continues to increase, in part fueled by the growth in passive investment strategies through products such as ETFs. In 2015, bond ETFs grew at a 22% organic growth as more investors use ETFs to gain exposure to fixed income markets. BlackRock’s overall fixed income ETF business has $256 billion in global assets under management and offers investors a comprehensive range of options for low-cost access to the fixed income market,” according to a statement issued by Intercontinental Exchange.
With commodity prices falling, traders are anticipating lower inflation, which would help preserve the value of fixed-income payments. Since long-term debt securities are more sensitive to the inflation outlook, Treasury bond funds with longer durations are outperforming.
Looking at historical data, every time the Federal Reserve hiked rates over the past four decades, Treasuries with longer maturities have outperformed short-term debt and even exceeded corporate bonds in the first year of tightening as higher rates depressed inflation and kept the economy from overheating, Bloomberg reports. Treasuries only underperformed once in the period.
In the year ahead, many don’t believe the Fed will move too quickly or aggressively, so interest rates may move higher at a leisurely pace as inflation remains low, the global economic outlook seems tepid and the U.S. economy expands at its weakest pace in decades.
Tom Lydon’s clients own shares of TLT.
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.