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.
“Bond investors are the most bullish on longer-dated Treasuries in two years as worries about slowing global growth and losses on Wall Street have spurred safe-haven demand for U.S. government debt, a J.P. Morgan survey showed on Tuesday,” Reuters reports.
Even with that new sentiment, the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) has suffered fourth-quarter outflows of $2.29 billion while the fourth quarter’s top asset-gathering bond ETFs are low duration funds. TLT, which tracks the ICE U.S. Treasury 20+ Year Bond Index, has an effective duration of almost 17.1 years.
Since 2016, the Federal Reserve has hiked rates seven times and if Goldman Sachs’ forecast of five more rate hikes to come is correct, fixed-income investors may continue favoring short-term debt. The Fed is widely expected to raise rates for the fourth time this year in December.
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The Long And Short Of It
“A quarter of investors surveyed said they were long on U.S. government bonds, up from 21 percent last week,” according to Reuters. “The share of investors who said they were short Treasuries fell to 21 percent from 23 percent a week ago.”
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.
“On Tuesday, benchmark 10-year Treasury yields US10YT=RR fell to 3.036 percent, the lowest level in over seven weeks. It has fallen steadily from a 7-1/2 year peak of 3.261 percent set on Oct 9, Refinitiv data showed,” according to Reuters.
TLT has a 30-day SEC yield of 3.26%.
For more trends in fixed income, visit the Fixed Income Channel.