Treasury bonds and related exchange traded funds strengthened Wednesday with yields pulling back as investors turned to the traditional safe-haven play.
Among the better performing non-leveraged ETFs of Wednesday, the Vanguard Extended Duration Treasury ETF (NYSEARCA: EDV) rose 2.7%, the SPDR Portfolio Long Term Treasury ETF (NYSEArca: SPTL) increased 1.9%, and iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) gained 2.1%.
Meanwhile, yields on 30-year Treasury notes slipped to 3.072% on Wednesday. Bond yields and prices have an inverse relationship.
Treasury bonds enjoyed safe-haven demand on Wednesday as U.S. equities suffered one of their biggest single-day declines since the COVID-19 pandemic first hit, following a quarterly report out of Target that further fueled concerns over rising inflation and recessionary fears.
Risk assets, like equities, have come under pressure on increasing concerns over elevated inflation and a tightening Federal Reserve monetary policy outlook, which has added to recession concerns if an overzealous central bank were to stifle economic growth in its pursuit of tackling inflation.
Fed Chairman Jerome Powell said Tuesday that the U.S. central bank would keep hiking interest rates until inflation starts to fall back to a healthy levels, CNBC reports.
Kit Juckes, macro strategist at Societe Generale, said on Wednesday that it’s “not just the rate hikes that hurt” the economy.
“The jump in inflation, increased uncertainty, the way that the huge pile of savings is distributed through society, all challenge the US economy’s resilience,” Juckes told CNBC.
The increased recession risks could help safe-haven assets like Treasury bonds ahead.
“The economy might manage through any one of the inflation or policy shocks, but the rapid convergence of multiple shocks has reached a point where we expect a contraction in U.S. GDP growth for a few quarters, starting later this year and carrying into the second quarter of 2023,” Wells Fargo Investment Institute said in a note, according to MarketWatch. The institute said its base case is for a “mild” contraction.
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