Treasury Bond ETF Popularity Is Noteworthy
Earlier, I mentioned one reason that I avoided them: volatility at the long end of the curve. I also imagined that price gains for the ETFs would be limited by record low yields. What's more, any sign of inflation, better-than-anticipated economic growth, foreign government reluctance to acquire double-A-rated sovereign debt and/or change in Federal Reserve monetary policy could have adverse effects on the asset class.
Equally compelling, the CBOE Volatility index (VIX) relative to the S&P 500 SPDR Trust has trended lower for seven months. With the fear in the "fear gauge" waning and stock assets gaining, wouldn't it be reasonable to expect investors to leave Treasury bond ETFs and shift into stock ETFs?
Reasonable analysis or not, Treasury Bond ETFs like iShares 7-10 Year Treasury(IEF) are sitting near 52-week highs. In other words, buyers of safe-haven assets are as dedicated as risk-on purchasers of S&P 500 stock assets. Maybe more so!
With the CBOE VIX Volatility near 52-week lows and the S&P 500 near 52-week highs, it may be difficult to pin the reason for Treasury bond popularity on investor fear. Equally likely, investors are buying what the Federal Reserve is buying; that is, if the central bank is purchasing shares in the middle of the curve, maybe you should too. It has been both profitable and safe.
Regardless of why U.S. Treasury Bond ETFs are popular -- whether investors are "following the Fed," avoiding stocks, or embracing non-European sovereign debt -- the uptrend remains intact. And for some folks, nothing else matters.
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