ETF Expert: Traditional U.S. Treasury Bond ETFs Are In A World of Hurt
22 July 2009 at 11:32 am by Gary Gordon
Right now, there's very little love for short, intermediate or long-term U.S. treasuries. The only people who seem to want them at these yields are the folks at the Federal Reserve.
Here's how the U.S. treasury bond landscape looks today:
| U.S. Treasury Bond ETF Performance Year-To-Date (Through 7/17/2009) | ||||||
| YTD | % Below 200-Day Trendline | |||||
| iShares 1-3 Year Treasury Bond Fund (IEV) | -1.1% | -0.4% | ||||
| iShares 3-7 Year Treasury Bond Fund (IEI) | -4.1% | -1.7% | ||||
| iShares 7-10 Year Treasury Fund (IEF) | -8.7% | -3.5% | ||||
| iShares 10-20 Year Treasury Fund (TLH) | -12.0% | -4.4% | ||||
| iShares 20+ Year Treasury Fund (TLT) | -23.6% | -10.1% | ||||
Granted, a second wave of systemic discord could send investors scurrying for the perceived safety of U.S. treasuries. Yet even Dr. Doom (Roubini) and Meredith Whitney don't believe the end-of-the-financial-world scenario is likely.
Worst cases? Anemic growth, stagflation, hyperinflation or even a double-dip recession. Yet none of the worst case possibilities bode particularly well for U.S. treasury bonds. In fact, the Fed is more likely to stop buying treasuries at some point, whereby treasury yields would climb and their prices would come down. (Investors are already looking ahead!)
Another way to look at the current predicament is through the eyes of the treasury short-sellers. The ever-popular Ultra-Short 20+ Treasury Fund (TBT) is above its 50-day and 200-day moving average. In fact, it recently bounced off its 200-day support. Moreover, the 50-day trendline climbed above the 200-day in late June.
Translation? From a technical standpoint… these are bullish signals for the "short-the-U.S.-treasury" crowd.
Interestingly enough, treasury bonds from developed nations via SPDR International Treasury Bond Fund (BWX), and emerging nations through PowerShares Emerging Sovereign Debt (PCY), are gaining advocates. Investors in government debt via these ETFs have seen year-to-date gains. What's more, BWX and PCY are both above their long-term, 200-day moving averages.
What's happening? Is it hedging against dollar devaluation? Is it a greater faith in the stability of current prices such that a reliable income stream may be produced? Is it safe haven seeking such that, U.S. treasury debt may be losing its status as a safer haven in difficult times?
Whatever it is… it's not good for holders of U.S. treasury bond ETFs. And it certainly won't be making the Fed's job any easier should the recession be coming to an end in 2009.
If you'd like to learn more about ETF investing… then tune into "In the Money With Gary Gordon." You can listen to the show "LIVE", via podcast or on your iPod.
Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.
