Improving Economic Conditions Could Push 10-Year Treasury Yield Higher

While investors were in the throes of the coronavirus pandemic sell-off, a deluge of inflows into bonds bottomed out Treasury yields, but Wells Fargo Securities feels the stage is set for a 10-year Treasury yield comeback.

With talks stirring of businesses reopening, a return back to normalcy could feed into higher yields for the 10-year Treasury note.

“You’ve got so many factors coming together,” said Michael Schumacher, Wells Fargo’s chief macro strategist. “As we suspect, you’ll see continued progress on the virus.”

“By the end of the year, we think they go quite a bit higher,” added Schumacher.

How high? Schumacher forecasts that within the next few weeks, the yield could be at 0.80%, which is 21% higher than its current levels.

Investors looking to get short-term exposure to Treasurys can look to funds like the Goldman Sachs Access Treasury 0-1 Year ETF (GBIL). GBIL seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the FTSE US Treasury 0-1 Year Composite Select Index.

The fund seeks to achieve its investment objective by investing at least 80% of its assets (exclusive of collateral held from securities lending) in securities included in its underlying index. The index is designed to measure the performance of U.S. Treasury Securities with a maximum remaining maturity of 12 months. The investment adviser uses a representative sampling strategy to manage the fund.

Additionally, investors can look at the iShares Short Treasury Bond ETF (NasdaqGM: SHV). SHV seeks to track the investment results of the ICE U.S. Treasury Short Bond Index, which measures the performance of public obligations of the U.S.

Treasuries that have a remaining maturity of equal to or greater than one month and less than one year. Additionally, the fund may invest up to 10% of its assets in U.S. government bonds not included in the underlying index, but which BFA believes will help the fund track the underlying index.

Investors can also take a look at the iShares 20+ Year Treasury Bond ETF (NasdaqGS: TLT). TLT seeks to track the investment results of the ICE U.S. Treasury 20+ Year Bond Index (the “underlying index”). The underlying index measures the performance of public obligations of the U.S. Treasury that have a remaining maturity greater than or equal to twenty years.

Advantages of adding TLT to your portfolio:

  • Exposure to long-term U.S. Treasury bonds
  • Targeted access to a specific segment of the U.S. Treasury market
  • Use to customize your exposure to Treasuries

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