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Are Treasury Bond ETFs Supporting Gloom-N-Doom?

28 June 2010 at 2:50 pm by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

The housing collapse, the “Great Recession,”¬†4,000,000 jobs eradicated… it began slowly¬†in 2008, then¬†accelerated¬†into 2009. Yet by mid-2009, there was GDP evidence of a “jobless recovery.”

Ironically, perhaps, bond yields on 6/28/2010 are sitting at 52-week lows. The 10-year treasury note is back to a paltry 3%. In fact, when one considers that the 10-year yield has pushed towards 4% on four separate occasions over the last 12 months, the current yield must be viewed as freakishly bearish for the U.S. economy.

Still, as shaky as the U.S. economy seems to be, is it really as bad as it was in November of 2008? In November of 2008, the entire financial system was in the process of imploding. Are we really heading for another systemic breakdown? 

I wouldn’t discount the possibility that fear can send investments¬†off the proverbial cliff. This is why it’s critical to maintain vigilance with the use of stop-limit loss orders.

With that said,¬†let’s assume a series of negative outcomes.¬†What if corporations remain exceptionally tentative to hire. And what if home prices fall¬†yet another 10%. And what if BP files¬†for bankruptcy. And¬†what if the¬†euro-dollar heads towards parity with the U.S. dollar.

Do any of these negative outcomes add up to the¬†titanic disaster that swept through the world in late ’08-’09?¬†Do these set of outcomes¬†logically lead to a second¬†wave of firings and layoffs of yet another 4,000,000 Americans? Would a second dip of home price depreciation¬†automatically result in the same level of bank write-downs and credit contraction that slammed shut the window on¬†business activity?

Malaise, fear, soft patch… yes. Investors running for the hills… also a “yes.” What’s more,¬†if Treasury Bond ETFs continue hitting 52-week highs with pathetic yields,¬†we’ll have to prepare to exit.

Nevertheless, the turnaround for investors would likely be equally swift. Why? Because the business climate is in far better shape than it was in November of 2008.

Perhaps folks shouldn’t discount the possibility that slow job growth isn’t the end of¬†an economy. Perhaps forward P/Es on stock assets that haven’t been this low since 1995 might be viewed as a buying opportunity. And perhaps this¬†will be as good as it gets for treasury bond ETFs in 2010. Perhaps.

Popular Treasury Bond ETFs Year-To-Date (Through 6/28/10)  
            Approx % Gain
iShares 1-3 Year Treasury Bond (SHY)     1.84%
iShares 3-7 Year Treasury (IEI)       5.53%
iShares 7-10 Year Treasury Bond (IEF)     8.95%
iShares 20+ Year Treasury Bond (TLT)     13.10%
iShares Aggregate Bond (AGG)       5.22%
Vanguard Total Bond (BND)       4.86%
Vanguard Extended Duration Bond (EDV)     18.83%


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Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above.¬†The company receives advertising compensation¬†from Invesco PowerShares Capital Management, LLC and Geary Advisors, LLC. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. Investors who are interested in money management services may visit the Pacific Park Financial, Inc.¬†web site.

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