- U.S. Treasury bonds and related ETFs find support from yield-starved foreign investors
- U.S. Treasuries strengthened, along with Japanese Government Bond, on renewed safe-haven demand
- As yields on foreign government debt slip lower, other highly rated country debt grows relatively more attractive
As yields on international government debt fall to new lows, U.S. Treasury bonds and related exchange traded funds will continue to find support from yield-starved foreign investors.
On Tuesday, the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT), which has a 17.75 year duration and a 2.40% 30-day SEC yield, was up 1.3%. The PIMCO 25+ Year Zero Coupon US Treasury (NYSEArca: ZROZ), which has a 27.26 year duration and a 2.77% 30-day SEC yield, rose 1.6%. The Vanguard Extended Duration Treasury ETF (NYSEArca: EDV), which has a 24.6 year duration and a 2.62% 30-day SEC yield, gained 1.7%.
U.S. Treasuries strengthened, along with Japanese Government Bond, on renewed safe-haven demand, with JGB yields dipping to new lows. Yields on Japan’s 30-year sovereign debt plunged 22 basis points to 0.475% after touching a record low of 0.468%, Bloomberg reports.
In comparison, yields on 30-year Treasury bonds were at 2.63%.
“The combination of weak Chinese data and low Japanese yields has precipitated a significant flattening of the curve with the long bond leading the way,” Aaron Kohli, an interest rate strategist at BMO Capital Markets, told Reuters.
As yields on foreign government debt slip lower, other highly rated country debt grows relatively more attractive.
“U.S. Treasuries still look pretty darn good in relation to much of what’s happening in the rest of the world,” Kohli added.
For instance, TD Securities argues that higher-yielding Treasuries will attract European investors and U.S. assets could also benefit from traders growing their dollar exposure, reports Jamie Chisholm for the Financial Times.
The yields on 30-year Germany Bunds were 0.96%.
“Over time, we would expect investors to move from Bunds into higher-yielding Treasuries,” TD Securities told the Financial Times. “When Bunds sold off on taper tantrum fears, the spread compressed from 184bp in April 2015 to 146bp in June 2015. It was a similar situation after the December disappointment from the ECB where the spread tightened from 171bp in early December to 164bp by the end of December.”
iShares 20+ Year Treasury Bond ETF