Government debt and bond-related exchange traded funds logged their best monthly rally in July in 16 months, as the Covid-19 Delta variant scare and the Federal Reserve’s assurances to maintain its loose monetary policy helped support the Treasuries market.
Over the past month, the PIMCO 25+ Year Zero Coupon US Treasury Index ETF (NYSEArca: ZROZ) advanced 5.6%, and iShares 25+ Year Treasury STRIPS Bond ETF (GOVZ) increased 5.5%.
The U.S. Treasury market found support on growing concerns that the economic recovery was not as strong as previously expected, and government debt also received a boost from short sellers rushing back into the market, Reuters reports.
The Federal Reserve is also maintaining its supportive outlook. Fed Chairman Jerome Powell said that the U.S. job market “is still a ways off” from what they would like it to be before cutting back on the bond purchasing program.
Meanwhile, U.S. 10 Treasury yields experienced their biggest drop since March 2020 when investors shifted to safe-haven assets at the height of last year’s market coronavirus pandemic-induced panic selling.
“It has been one of the best months we had because of the massive price return in most of our investments. Most of the performance has been led by the govvie, Treasury rates,” Pascal Perrone, portfolio manager at Eric Sturdza Investments, told Reuters.
Furthermore, inflation-linked debt, which rises or falls in line with inflation and are a good hedge against rising prices, has attracted a record $3.2 billion in inflows over the week ended Wednesday after data showed consumer prices rose 5% in July, its fastest pace in 13 years. The iShares TIPS Bond ETF (TIP) was also among the most popular ETF plays over the past week, attracting $1.7 billion in net inflows, according to ETFdb data.
However, some warned that the record low real yields are a cause for concern since they reflect rising pessimism over the growth outlook.
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