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.
Treasury bond ETFs that track government debt securities with long-term maturities have been strengthening. For instance, the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT), which has a 17.59 year duration and a 2.45% 30-day SEC yield, gained 6.8% year-to-date. The PIMCO 25+ Year Zero Coupon US Treasury (NYSEArca: ZROZ), which has a 27.35 year duration and a 2.68% 30-day SEC yield, rose 11.5%. The Vanguard Extended Duration Treasury ETF (NYSEArca: EDV), which has a 24.7 year duration and a 2.71% 30-day SEC yield, increased 10.3%.
Despite the dip in yields and rising momentum in Treasury bonds, Morgan Stanley Strategists argue that there’s more room for yields to fall as economic data falls short of expectations, reports Kevin Buckland for Bloomberg.
“Despite the meaningful decline in sovereign yields since the Fed lifted off in December, we would rather overstay our welcome than miss a continuation of the move to lower yields,” Morgan Stanley analysts led by Matthew Hornbach, head of global interest-rate strategy, said in a note. “We do not think Fed Chair Yellen’s testimony will loosen financial conditions enough for global yield curves to steepen.”
Yields on benchmark 10-year Treasury bonds are now back down to 1.735%. Treasuries have experienced one of their best starts to a new year since the financial crisis as global growth concerns, falling oil prices and an earnings recession spurred a selloff in riskier assets and increased demand for safe-haven assets. [ETF Investors Flock to Safe-Haven Assets]