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Treasury ETFs in Focus as Yields Spike

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The U.S. benchmark 10-year Treasury yields increased to a five-and-a-half-month high as strong equity market performance contributed to investor risk appetite. Moreover, talks of a hawkish Fed chair being the Republican favorite and ECB meeting pressure weighed on bond prices. Bond yields and prices move inverse to each other (read: ETFs & Stocks Gaining from S&P 500's Record Run ).

Fed Chair Talks Moving the Market

Stanford University economist John Taylor, a prospective candidate for the Fed chairman, is said to have emerged as the favorite to replace Fed Chair Janet Yellen among the Republican senators. Per a Bloomberg report, Republican senator Tim Scott said that the economist secured maximum support from Senate Republicans when President Donald Trump asked for their opinions by a show of hands on who should assume the post.

However, per a Financial Times article, citing PredictIt betting market data, Jerome Powell, a Fed board member still remains the favorite. Although Taylor's chances jumped from 17% to 31%, Powell remains the most likely candidate to win with 53%. Powell is seen as a candidate who will not steer much from the current Fed policy and is regarded as a centrist.

ECB meeting and Equity Market Rally

Euro zone bond yields saw an increase on market expectations of the European Central Bank announcing a reduction in its monthly monetary stimulus in its next meeting scheduled for Oct 26, 2017. This led to a reduction in interest in bond investing, thus creating pressure on Treasury prices.

Republicans advanced on the tax reform plan promised by Trump. On Oct 19, the Senate passed a budget of $4 trillion in a 51-49 vote, which will allow the Republicans to move ahead with the tax cuts. The tax reform is expected to significantly boost earnings. Moreover, the third-quarter earnings season so far has been impressive. This led to a rally in the stock markets as investors grew more optimistic about Trump delivering on his campaign promises (read: 5 Biggest ETF Winners of Trump Trade Resurgence ).

Let us now discuss a few ETFs focused on providing exposure to U.S. Treasuries (see all Government Bond ETFs here ).

iShares 7-10 Year Treasury Bond ETFIEF

This fund seeks to provide exposure to intermediate term U.S. Treasury bonds.

With $7.5 billion in AUM, it charges a fee of 15 basis points a year. It has an effective duration of 7.52 years and a weighted average maturity of 8.27 years. The fund has returned 1.0% year to date but has lost 4.4% in a year (as of Oct 24, 2017). IEF currently has a Zacks ETF Rank #3 (Hold) with a High-risk outlook.

iShares U.S. Treasury Bond ETFGOVT

This fund seeks to provide exposure to U.S. Treasury bonds in a wide-maturity spectrum.

It has AUM of $5.4 billion and charges a fee of 15 basis points a year. It has an effective duration of 5.97 years and a weighted average maturity of 7.50 years. The fund has returned 0.7% year to date but has lost 2.9% in a year (as of Oct 24, 2017). GOVT currently has a Zacks ETF Rank #3 with a Medium-risk outlook.

Vanguard Intermediate-Term Government Bond ETFVGIT

This fund seeks to provide exposure to U.S. Treasury bonds in the five-10 years maturity spectrum.

It has AUM of $1.4 billion and charges a fee of 7 basis points a year. It has an average duration of 5.2 years and an average effective maturity of 5.5 years. The fund has returned 0.6% year to date but has lost 3.0% in a year (as of Oct 24, 2017). VGIT currently has a Zacks ETF Rank #3 with a Medium-risk outlook.

iShares 10-20 Year Treasury Bond ETFTLH

This fund seeks to provide exposure to long- term U.S. Treasury bonds in the 10-20 year maturity horizon.

It has AUM of $528.7 million and charges a fee of 15 basis points a year. It has an effective duration of 10.22 years and a weighted average maturity of 13.81 years. The fund has returned 1.9% year to date but has lost 5.0% in a year (as of Oct 24, 2017). TLH currently has a Zacks ETF Rank #3 with a High-risk outlook.

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ISHARS-7-10YTB (IEF): ETF Research Reports

VANGD-IT GOV BD (VGIT): ETF Research Reports

ISHARS-US TB (GOVT): ETF Research Reports

ISHARS-10-20YTB (TLH): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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