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How Treasury ETFs Spiked Last Week on a Drop in Yields

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Treasuries continued to gain momentum to start April as yields slipped to near multi-month lows. The latest batch of data has fueled worries of recession, raising the appeal for Treasuries as a safe haven investment.

While most of the ETFs targeting the Treasury market were on the rise last week, Simplify Intermediate Term Treasury Futures Strategy ETF (TYA - Free Report) , PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (ZROZ - Free Report) , iShares 25+ Year Treasury STRIPS Bond ETF (GOVZ - Free Report) , Vanguard Extended Duration Treasury ETF (EDV - Free Report) and BondBloxx Bloomberg Twenty Year Target Duration US Treasury ETF (XTWY - Free Report) led the way higher with more than 4% gains each.  

The 10-year yields dropped to their lowest levels in seven months following the weaker-than-expected manufacturing and service activity data. U.S. manufacturing activity slumped to the lowest level in nearly three years in March as new orders plunged. Rising borrowing costs have hurt the demand for goods, which are typically bought on credit.

The ISM's manufacturing PMI dipped to 46.3 last month, the lowest reading since May 2020, from 47.7 in February. This marks the fifth straight month that the PMI remained below the 50 threshold, which indicates a contraction in manufacturing. The weak trend is expected to continue further amid tightening credit conditions (read: 5 Best Performing Sector ETFs of Q1).

Meanwhile, growth in U.S. service sector activity also slowed more than expected in March as demand cooled, while a measure of prices paid by services businesses fell to the lowest in nearly three years. The ISM services PMI slid to 51.2 in March from 55.1 in February. A drop in the new orders growth was the major culprit.

The slowdown in the world’s largest economic activities could push the global economy into recession. Notably, Treasuries are safer investments during economic downturns.

Let’s delve deeper into the above-mentioned ETFs:

Simplify Intermediate Term Treasury Futures Strategy ETF (TYA - Free Report)

Simplify Intermediate Term Treasury Futures Strategy ETF seeks to provide total return, before fees and expenses, that matches or outperforms the performance of the ICE US Treasury 20+ Year Index on a calendar quarter basis. It looks to target the duration of the ICE 20+ Year US Treasury Index by investing in Treasuries and Treasury futures in the intermediate portion of the curve. TYA is designed to provide significant duration from only a modest capital allocation while simultaneously attempting to harvest yield curve efficiencies from the belly of the curve.

Simplify Intermediate Term Treasury Futures Strategy ETF has accumulated $39 million in its asset base since and charges 15 bps in annual fees.

PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (ZROZ - Free Report)

PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF offers exposure to the long end of the yield curve. It follows the BofA Merrill Lynch Long Treasury Principal STRIPS Index and holds 26 securities in its basket. Both effective maturity and the effective duration of the fund are 27.33 years and 26.90 years, respectively (read: Fearing a US Recession? 5 ETF Areas to Tap).

PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF has $901.5 million in AUM and an average daily volume of 204,000 shares. It charges 15 bps in annual fees and has a Zacks ETF Rank #4 (Sell).

iShares 25+ Year Treasury STRIPS Bond ETF (GOVZ - Free Report)

iShares 25+ Year Treasury STRIPS Bond ETF offers exposure to U.S. principal STRIPS (Separate Trading of Registered Interest and Principal Securities) with remaining maturities of at least 25 years. It tracks the ICE BofA Long US Treasury Principal STRIPS Index, holding 23 bonds in its basket. iShares 25+ Year Treasury STRIPS Bond ETF has an average maturity of 27.43 years and an effective duration of 26.96 years.

iShares 25+ Year Treasury STRIPS Bond ETF has amassed $129.9 million in its asset base and charges 10 bps in fees per year. GOVZ trades in an average daily volume of 506,000 shares.

Vanguard Extended Duration Treasury ETF (EDV - Free Report)

Vanguard Extended Duration Treasury ETF provides exposure to the long-term Treasury STRIPS market by tracking the Bloomberg U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index. It holds 81 bonds with an average maturity of 24.9 years and an average duration of 24.4 years. Expense ratio comes in at 0.06%.

Vanguard Extended Duration Treasury ETF has an AUM of $1.9 billion and sees a good volume of 340,000 shares per day, on average. It has a Zacks ETF Rank #4 (read: March ETF Asset Report: U.S. Treasuries Win).

BondBloxx Bloomberg Twenty Year Target Duration US Treasury ETF (XTWY - Free Report)

BondBloxx Bloomberg Twenty Year Target Duration US Treasury ETF provides exposure to U.S. Treasury securities that have an average duration of approximately 20 years. It follows the Bloomberg US Treasury Twenty Year Duration Index and holds 20 bonds in its basket. Average maturity comes in at 26.39 years.

BondBloxx Bloomberg Twenty Year Target Duration US Treasury ETF has accumulated $26.3 million in its asset base since its inception in September. It trades in an average daily volume of 2,000 shares and charges 13 bps in annual fees.

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