Treasury Bond ETFs Strengthen as COVID-19 Lockdowns Add to Safety Bets

Treasury bond exchange traded funds strengthened on Friday as investors rushed to safety in response to another round of COVID-19 lockdown measures in Europe that weighed on the global economic outlook.

On Friday, the Vanguard Intermediate-Term Treasury Index Fund ETF Shares (VGIT) was up 0.1%, and the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT) rose 1.0%. Meanwhile, yields on benchmark 10-year Treasury notes fell to 1.536%, and yields on 30-year Treasuries dipped to 1.907%. Bond prices and yields have an inverse relationship.

“Today we are seeing a very typical end of week sell-off as traders decide it’s not worth the risk to await more potential demand-side bearish news,” research company Rystad Energy said in a statement.

New COVID-19 infections are rising in the U.S. and Europe, adding to fears of another winter holiday spike, the Wall Street Journal reports.

“As Covid spreads in Europe and restrictions are strengthened in places in Germany and Austria, there’s a general recognition that things may not be going the right way,” Sebastien Galy, a macro strategist at Nordea Asset Management, told the WSJ. “This affects sentiment, both within markets and in households.”

“We had a relief rally from earnings, but now people are concerned about what comes next,” Galy added, pointing to elevated equity valuations.

The Austrian chancellor announced on Friday that the country would go into a lockdown starting Monday. Some regions in Germany are going into a partial lockdown next week as well.

“A total lockdown for Germany would be extremely bad news for the economic recovery,” Ludovic Colin, a senior portfolio manager at Swiss asset manager Vontobel, told Reuters. “It’s exactly what we saw in July, August of this year in parts of the world where the Delta was big; it (COVID-19) came back and it slows down the recovery again.”

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