Although U.S. stocks have staged a nice recovery over the past few days, investors have displayed an overt preference for less risky assets this year. That sentiment has bolstered the fortunes of fixed income exchange traded funds as well as gold funds, such as the SPDR Gold Shares (NYSEArca: GLD).
Concerns over a global slowdown weighed on riskier assets and equity markets since the new year began, adding to speculation that the Federal Reserve may hold off on four interest rate hikes this year.
Gold-related assets have been rallying as global volatility helped support safe-haven investments and a weakening U.S. dollar helped prop up the USD-denominated hard asset. While GLD has been a solid performer this year, on its way to adding more than $2.3 billion in new assets, investors are using fixed income ETFs as their safe-haven plays of choice.
As of Feb. 16, six of this year’s top 10 asset-gathering ETFs are bond funds, including the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT). TLT ranks second on the list, just ahead of GLD. Despite benchmarks Treasury yields nearing record lows, investors may want to stick to government debt securities and bond-related exchange traded funds as more continue to pare bets on further Federal Reserve interest rate hikes.
“Tumult in global stocks and high-yield debt has helped boost gold prices by 13 percent this year through Tuesday. Yet investors are stashing most of their cash in exchange-traded funds investing in Treasuries, even as gains of 2.4 percent lag behind those of the precious metal. The dash into U.S. debt may continue, with banks including Deutsche Bank AG still recommending clients load up on Treasuries,” reports Alexandra Scaggs for Bloomberg.
While benchmark 10-year Treasury yields are back below 2%, Treasury bond yields still look more attractive for foreign investors. For instance, yields on 10-year German bunds is 0.22% and yields on 10-year Japanese government bonds is 0.03%.
“What’s more, most of the cash is going into long-term Treasuries, which suffer the worst losses from rising rates and inflation. This year’s inflows into TLT have outpaced inflows into short-term debt funds like the iShares Short Treasury Bond ETF and the iShares 1-3 Year Treasury Bond ETF,” according to Bloomberg.
iShares 20+ Year Treasury Bond ETF
Tom Lydon’s clients own shares of GLD and 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.