Long-term Treasury bonds and related exchange traded funds are slipping as yields rebound from their lowest level since the states began rolling back shutdown measures.
The iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) dipped 0.6% Friday after an increase of 5.6% over the past month.
Meanwhile, yields on 30-year Treasuries pushed up to 1.326% from 1.284%, its lowest level since May 1 while yields on 10-year Treasury notes touched 0.6%, its lowest level since April 24, and the yield on five-year Treasuries briefly touched a record low of 0.258%, the Wall Street Journal reports. Bond prices fall as yields rise.
A narrowing gap between shorter- and longer-dated bonds have reflected investor expectations that interest rates will remain subdued. However, the gap between the two widens when investors grow optimistic about the economy, especially with growing anticipation of a viable Covid-19 vaccine that could help return the economy back to normal.
Hopes of a coronavirus treatment helped markets rebound Friday despite the spike in U.S. Covid-19 cases. New coronavirus cases in the U.S. rose by over 63,000 Thursday, another single-day global record.
“You have increased uncertainty globally, and you have more savings, so investors are looking to put money to work in a more conservative way,” Andrey Kuznetsov, senior credit portfolio manager at Federated Hermes, told the WSJ. “As a result, this drives demand” for bonds.
Furthermore, the bond market has found support from aggressive monetary policy measures while yields tanked lower and lower. For example, in the U.K., the yield on the five-year gilt, as British government bonds are known, hit a record low Thursday of negative 0.08%. Investors expect the Bank of England will implement negative policy rates in the future to help stimulate a stagnate economy pummeled by the coronavirus shutdowns.
Meanwhile, in the U.S., bonds have enjoyed strong support from ongoing quantitative easing measures as the Federal Reserve tries to support liquidity in the financial system.
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