Intensifying Trade Woes Trigger Rally in Treasury ETFs
Heightened trade tensions that kept the Wall Street on a tumultuous ride have sparked a surge in the fixed income space. This is especially true as the deepening trade dispute between the United States and China raised concerns about global economic growth.
Amid the escalating feud, President Donald Trump increases tariff to 25% from 10% on Chinese goods worth of $200 billion effective May 10 midnight and has threatened to levy another 25% tariff on further $325 billion of Chinese goods "shortly." In retaliation, China is seeking to impose as much as 25% tariff on U.S. imports worth $60 billion effective Jun 1. Additionally, Trump has banned the Chinese firm Huawei Technologies and 26 of its affiliates from doing business with American companies effective May 17 though it provided a 90-day exemption (read: Best and Worst ETFs Halfway Through Q2).
A wave of pessimism surrounding such negative trade news has pushed the U.S. Treasury yields down, raising demand for the safe-haven bonds in turn, especially the long-dated ones. Notably, 10-year yields plunged to the lowest level since October 2017. Added to this favorable trend of the bond market is the patient Fed as the central bank is in no hurry to raise interest rates this year, citing signs of a sluggish inflation and uncertainties, stemming from the ongoing US-China trade war.
As such, long-term Treasury bond ETFs have been on the rise over the past week and will likely continue to do so at least for the near term. Below, we have profiled five ETFs, surging the most on trade worries (see: all Government Bond ETFs here).
PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF ZROZ
This ETF follows the BofA Merrill Lynch Long Treasury Principal STRIPS Index and holds 21 securities in its basket. Both effective maturity and effective duration of the fund are 27.31 years. This fund has a decent level of $211.2 million in AUM while a light average daily volume of 23,000 shares. It charges 15 bps in annual fees and has gained 2.5% over the past week. The ETF has a Zacks ETF Rank #4 (Sell) with a High risk outlook.
Vanguard Extended Duration Treasury ETF EDV
This fund provides exposure to the long-term Treasury STRIPS market by tracking the Bloomberg Barclays U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index. It holds 81 bonds in total with average maturity of 25 years and average duration of 23.9 years. Expense ratio comes in at 0.07%. The product has amassed $1 billion in its asset base while seeing a moderate volume of 154,000 shares per day on average. It has added 2.2% in the same time frame and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Why Should You Buy Treasury ETFs Now?).
Vanguard Long-Term Government Bond ETF VGLT
With AUM of $958.5 million, this fund follows the Bloomberg Barclays U.S. Long Government Float Adjusted Index. It holds 50 bonds in its basket with average maturity of 25.4 years and average duration of 17.1 years. The ETF trades in a good volume of around 230,000 shares and has 0.07% expense ratio. The product is up 1.6% over the past week and has a Zacks ETF Rank of 3 with a High risk outlook.
iShares 20+ Year Treasury Bond ETF TLT
This is the most popular and liquid ETF in the long-dated bond space with AUM of over $13.2 billion and average daily volume of 8.6 million shares. It tracks the ICE U.S. Treasury 20+ Year Bond Index, holding 35 securities in its basket. The fund has average maturity of 25.15 years and effective duration of 17.42 years. It charges 15 bps in fees per year and has added 1.6% in the same time frame. The product is a Zacks #3 Ranked ETF with a High risk outlook (read: How China Could Retaliate Huawei Ban & Its Impact on ETFs).
SPDR Portfolio Long-Term Treasury ETF SPTL
This fund tracks the Bloomberg Barclays Long U.S. Treasury Index, charging investors 6 bps in annual fees. It holds 56 bonds in its basket with average maturity of 24.84 years and an adjusted duration of 17.64 years. SPTL is one of the popular choices in the long-term Treasury space with AUM of $1.8 billion and average daily volume of 943,000 shares. SPTL inched up 1.5% in a week and is a #3 Ranked ETF.
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iShares 20+ Year Treasury Bond ETF (TLT): ETF Research Reports
Vanguard Extended Duration Treasury ETF (EDV): ETF Research Reports
PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (ZROZ): ETF Research Reports
Vanguard Long-Term Treasury ETF (VGLT): ETF Research Reports
SPDR Portfolio Long Term Treasury ETF (SPTL): ETF Research Reports
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