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Are Treasury Bond ETFs Mounting A Comeback?

27 March 2013 at 11:39 am by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

I came across an interesting fact on the news wires recently. The S&P 500 has corrected at least 5% at least one time in the first 5 months of every year since 1996. What does that mean? It implies that the probability of seeing the benchmark fall to 1485 from 1565 is greater than any of us might like to believe.

Nobody knows whether or not a run on European banks will create more sellers than buyers of U.S stock assets. For that matter, 2013 may defy every probable outcome and every warning sign.

On the other hand, safety-seekers appear interested by U.S. treasuries once again. The iShares Barclays 20+ Year Treasury Bond Fund (TLT) is further above its near-term 50-day moving average than at any point since the fiscal cliff concerns that jockeyed alongside the November elections. Additionally, TLT is demonstrating greater relative strength via its RSI Index than at any point since those same November dates.

TLT 6 Months

The song is very similar for all of the long-dated treasury bond funds, including Vanguard Extended Duration (EDV), PIMCO 7-15 Year Treasury (TENZ) as well as PIMCO 20+ Zero Coupon Treasury (ZROZ).

Perhaps surprisingly, intermediate-dated treasuries have held up rather well throughout the stock bull of 2013. In spite of consistent commentary that forewarned imminent rises in yields circa mid-February, iShares 7-10 Year Treasury (IEH) and iShares 3-7 Year Treasury (IEI) have seen the 50-day slope turn higher since February. More recently, the respective slopes have turned positive — a potential “buy signal” for many technical analysts.

IEI

While I respect technical data, I do not make decisions based on chart patterns and relative strength alone. I find value in a wide variety of info — fundamental, contrarian, economic, geo-political, seasonal, historical, anecdotal, rate policy and more. That’s why I am equally intrigued by the historical data on 15+ consecutive years with 5% pullbacks by May; that’s also the reason that I am particularly interested in the contrarian info provided by ultra-low levels for the CBOE S&P 500 VIX Volatility (VIX).

VIX Over Time

For my clients at Pacific Park Financial, Inc., I am not holding any direct exposure to Treasury Bond ETFs. If I am looking for a safe haven, money market accounts and short-term corporate credit via iShares 1-3 Year Credit (CSJ) are more appealing. If I am looking for reasonable reward for low risk, short-term diversified high yield is preferable; both PIMCO 0-5 Year High Yield (HYS) and SPDR Short-Term High Yield (SJNK) are worthy of consideration.

Right now, investors continue buying into every sign of S&P 500 weakness. If Treasury Bond ETFs continue to climb, however, don’t be shocked if the smart money begins selling into S&P 500 strength.

A Comeback For Treasury Bond ETFs?
Approx 5-Day %
PIMCO 25+ Year Zero Coupon (ZROZ) 3.2%
Vanguard Extended Duration Treasury (EDV) 3.0%
iShares Barclays 20 Year Treasury (TLT) 2.0%
Vanguard Long-Term Government (VGLT) 1.9%
iShares Barclays 10-20 Year Treasury (TLH) 1.2%
PowerShares 1-30 Laddered Treasury (PLW) 1.1%
iShares Barclays 7-10 Year Treasury (IEF) 0.9%
S&P 500 SPDR Trust (SPY) 0.1%

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Disclosure Statement: ETF Expert is a web log (”blog”) 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. Gary Gordon, Pacific Park Financial, Inc., and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

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