Even defensive sectors are slumping. Last week’s market plunge took a toll on normally defensive, lower beta groups, including consumer staples, real estate and utilities. For example, the Utilities Select Sector SPDR (NYSEArca: XLU) lost more than 4%.
Among this year’s most popular fixed income exchange traded funds are low and ultra-short duration fare, but a new survey indicates investors are revisiting bonds with longer-dated maturities. However, with some shelter-from-the-storm plays failing, investors may renew their affinity for longer-dated bonds and exchange traded funds such as the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT).
TLT, which tracks the ICE U.S. Treasury 20+ Year Bond Index, has an effective duration of almost 17.1 years. TLT could be one market segment that offers investors adequate protection should stocks continue trending lower.
“The TLT 20+ year Treasury bond ETF tracks the prices of bonds with long-term maturities. The ETF’s 50-day moving average, a measure of short-term trend, has been on the upswing since the beginning of December,” according to CNBC.
Time For TLT?
Short-term Treasury yields usually rise along with investor expectations for tighter Fed rate policies while longer-term yields are more sensitive to growth and inflation sentiment. Investors typically monitor the yield curve, or difference between long- and short-term yields, as an indicator for economic growth. The last time short-term rates exceeded long-term yields was before each recession since at least 1975, or something also known as an inverted yield curve.