Treasury Bond ETFs Bounce on Safety Bets as Omicron Lands in the U.S.

Treasury bonds and related exchange traded funds picked up toward the end of Wednesday as U.S. equities slipped with traders doing a double take on concerns over the new COVID-19 Omicron variant.

On Wednesday, the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT) was flat, and the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT) rose 0.3%. Meanwhile, yields on benchmark 10-year Treasury notes fell to 1.434%, and yields on 30-year Treasuries dipped to 1.778%. Bond prices and yields have an inverse relationship.

The markets were initially in a risk-on mood early Wednesday, but sentiment shifted toward the end of the session after reports that new COVID-19 infections nearly doubled in South Africa and that the COVID-19 Omicron variant was identified in California, the Wall Street Journal reports.

“We just don’t know how much more infectious it is, how severe the symptoms are and what the impact of that is,” Sebastian Mackay, a multi-asset fund manager at Invesco, told the WSJ, referring to the Omicron variant. “What I’d assume now is this probably isn’t enough to derail the recovery that’s going on.”

The rise of the Omicron variant is fueling another round of pandemic uncertainty into risk markets at a time when investors were already digesting the idea that elevated inflationary pressures are here to stay. Among the greatest fears weighing on the markets, investors are worried that the new variant could trigger renewed restrictions in the U.S. and elsewhere around the globe.

Additionally, another point of concern is how effective current COVID-19 vaccines are against the new variant, and drug makers have warned that vaccines in use may be less effective against Omicron, but they expect to roll out an updated booster shot.

“Volatility in the short run should be expected—ultimately, we’re dealing with a little more uncertainty than we have been,” Chris Zaccarelli, chief investment officer of Independent Advisor Alliance, told the WSJ. “There’s enough cause for concern that people are shooting first and asking questions later.”

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