Exchange traded funds that track U.S. Treasuries have attracted inflows for 10 consecutive weeks, the longest period in almost five years, as global volatility and economic uncertainty fueled safe-haven demand.
According to Lipper data, U.S. Treasury funds attracted $1.6 billion in net inflows for the week ended February 17, bringing the net inflows this year to $12.4 billion, reports Min Zeng for the Wall Street Journal.
To put this in perspective, funds that track U.S. Treasuries brought in $16.1 billion for the whole of 2015.
Demand for U.S. Treasuries continues unabated. Over the past week, four Treasuries-related ETFs were among the top ten investment picks. The iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) attracted $444.9 million in net inflows, iShares 3-7 Year Treasury Bond ETF (NYSEArca: IEI) saw $326.9 million in inflows, iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) experienced $275.3 million in inflows and iShares TIPS Bond ETF (NYSEArca: TIP) added $256.5 million in new assets, according to ETF.com.
TIP, which tracks a group of U.S.Treasury inflation-protected securities, saw increased interest as inflationary pressures tick higher. The Labor Department revealed that its Consumer Price Index, excluding volatile food and energy prices, rose 0.3% last month, the largest monthly gain since August 2011, as rising rents and healthcare costs lifted underlying U.S. inflation, reports Lucia Mutikani for Reuters.
Moreover, the declining yields in overseas government bonds has also helped bolster foreign demand for higher yielding U.S. Treasuries. For instance, yields on benchmark 10-year German bunds were at 0.20% and 10-year Japanese Government Bonds were at 0.00%. A EPFR Global report also revealed that investors ditched European debt in favor of U.S. fixed-income asset sin the week ended February 17 due to the higher yields, Bloomberg reports.
The rising demand for U.S. government debt has helped push yields down. Yields on benchmark 10-year Treasury bonds were hovering around 1.748% Friday, compared to 2.273% at the end of 2015, and briefly traded near historical lows last week.
Looking ahead, many traders caution against placing large negative bets against the bond market in an environment of low growth and rising volatility. The yield premium between 10-year notes and two-year notes fell to 1 percentage point Friday, the Wall Street Journal reports.
The lower yield premium or flattening yield curve may be a warning sign of slower growth and inflation ahead. The premium has fallen negative prior to a recession before during the summer of 2007 and December 2000.
Max Chen contributed to this article.