U.S. Treasury bonds and related exchange traded funds have been an attractive option this year as safe-haven demand and relatively higher yields help attract investors.
Richard Clarida, global strategic advisor and managing director at PIMCO, argues that the global uncertainty has pushed more investors toward U.S. bonds, reports Kate Rooney for CNBC.
“As you have uncertainty about China and the oil market, and about global recovery, money flows into the U.S.,” Clarida told CNBC. “U.S. Treasurys are the place to be.”
Clarida, though, warned investors of shorter maturity debt. On the other hand, if the Federal Reserve leaves interest rates unchanged in its March meeting, Clarida suggested that investors should stick to the five- to seven-year point. [Investors Can’t Get Enough of Treasury Bonds, ETFs]
ETF investors can also focus more intermediate-term Treasuries through targeted Treasury bond-related funds, including the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF), Schwab Intermediate-Term U.S. Treasury ETF (NYSEArca: SCHR), Vanguard Intermediate-Term Government Bond ETF (NYSEArca: VGIT) and SPDR Barclays Intermediate Term Treasury ETF (NYSEArca: ITE). Year-to-date, IETF was up 4.9%, SCHR was 3.1% higher, VGIT gained 3.0% and ITE rose 1.6%. [Bond ETFs to Weather a Political Storm]
IEF has a 7.00 year duration and a 1.54% 30-day SEC yield, SCHR has a 5.20 year duration and a 1.26% 30-day SEC yield, VGIT has a 5.20 year duration and a 1.25% 30-day SEC yield and ITE has a 3.88 year duration and a 1.01% 30-day SEC yield.
Yields on benchmark 10-year Treasury bonds ended at 1.70% Thursday.
In addition, overseas demand for more attractive U.S. government yields has also helped support the Treasuries market. For instance, the yield spread between U.S. Treasuries and German bunds narrowed from a three-week high of 160 basis points, Bloomberg reports. Yields on 10-year German bunds were at 0.14% on Thursday.
“Why buy a German bund when you can pick up 150 basis points more in U.S. Treasuries?” Richard Kelly, global head of strategy at Toronto Dominion Bank, asked.
The search for safety has also pushed Japanese bond yields further into negative territory. Yields on 10-year Japanese Government Bonds were at -0.08% on Thursday.
“While these yield levels are a bit stretched, some people are just not buying negative-yield assets,” David Schnautz, a fixed-income strategist at Commerzbank AG, told Bloomberg. “So, the simple fact of offering positive yields is a strong supportive factor for Treasuries.”
iShares 7-10 Year Treasury Bond ETF
Max Chen contributed to this article.
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.