Despite a tighter monetary policy out of the Federal Reserve with two more interest rate hikes planned later this year, Treasury bonds and related ETFs have been gaining momentum in recent weeks.

Over the past month, the PIMCO 25+ Year Zero Coupon US Treasury Index ETF (NYSEArca: ZROZ) advanced 3.6%, Vanguard Extended Duration Treasury ETF (NYSEARCA: EDV) gained 3.8% and  iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) increased 2.4%.

Yields on 30-year Treasury notes are now hovering around 2.95% while yields on benchmark 10-year notes are at 2.83%.

Meanwhile, the yield spread between short- and long-term Treasuries has narrowed to nearly 11-year lows, reflecting greater investor caution over the economic outlook, reports Daniel Kruger for the Wall Street Journal.

A Flattening Yield Curve

The difference between yields on two- and 10-year U.S. government notes settled at 0.302 Tuesday, its narrowest since August 2007.

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.

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