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Treasury ETFs Weaken in the Wake of Tax Talk and Fed Chief Rumors
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U.S. Treasury yields increased as Republican leaders unveiled a tax reform plan aimed at reducing taxes for the corporate and for individuals. Critics argue that the plan benefits the top 1%, while hardly giving the income of the middle class and the poor a boost. Bond prices and yields are inversely related (read: U.S. Treasury ETFs: What Lies Ahead?).
Tax Reform Plan
Per a vox.com article citing analysis by the nonpartisan Tax policy center, the tax reform plan would boost the incomes of the top 0.1% and 1% by 10.2% and 8.5% respectively. However, the incomes of the middle class and the poor will get a negligible boost of 1.2% and 0.5%, respectively.
Moreover, the tax reform is expected to increase the federal deficit by $2.4 trillion in the first decade alone. Therefore, the plan is expected to be a huge burden on the next government.
Fed Chair Nomination
President Donald Trump met multiple candidates for the post of the Fed chair, including Fed Governor Jerome Powell, former Fed governor Kevin Warsh, current Fed chair Janet Yellen and White House economic advisor Gary Cohn.
The highlight, however, was the meeting with former Fed governor Kevin Warsh. Reports of this meeting sent financial stocks and Treasury yields higher. The primary factor driving this was investors’ hopes of a potential Fed lead who shares the administration’s priorities of deregulation and further hikes in interest rates.
This fund seeks to provide exposure to intermediate term U.S. Treasury bonds.
With $7.90 billion in AUM, it charges a fee of 15 basis points a year. It has an effective duration of 7.57 years and a weighted average maturity of 8.33 years. The fund has returned 2.9% year to date but has lost 3.3% in a year (as of Sep 29, 2017). IEF currently has a Zacks ETF Rank #3 (Hold) with a High-risk outlook.
This fund seeks to provide exposure to U.S. Treasury bonds in a wide-maturity spectrum.
It has AUM of $5.40 billion and charges a fee of 15 basis points a year. It has an effective duration of 6.03 years and a weighted average maturity of 7.56 years. The fund has returned 2.3% year to date but has lost 2.0% in a year (as of Sep 29, 2017). GOVT currently has a Zacks ETF Rank #3 with a Medium-risk outlook.
Vanguard Intermediate-Term Government Bond ETF (VGIT - Free Report)
This fund seeks to provide exposure to U.S. Treasury bonds in the 5-10 years maturity spectrum.
It has AUM of $1.34 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 5.6 years. The fund has returned 2.2% year to date but has lost 1.5% in a year (as of Sep 29, 2017). VGIT currently has a Zacks ETF Rank #3 with a Medium-risk outlook.
iShares 10-20 Year Treasury Bond ETF (TLH - Free Report)
This fund seeks to provide exposure to longe- term U.S. Treasury bonds in the 10-20 year maturity horizon.
It has AUM of $614.3 million and charges a fee of 15 basis points a year. It has an effective duration of 10.28 years and a weighted average maturity of 13.85 years. The fund has returned 3.9% year to date but has lost 4.5% in a year (as of Sep 29, 2017). TLH currently has a Zacks ETF Rank #3 with a High-risk outlook.
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Treasury ETFs Weaken in the Wake of Tax Talk and Fed Chief Rumors
U.S. Treasury yields increased as Republican leaders unveiled a tax reform plan aimed at reducing taxes for the corporate and for individuals. Critics argue that the plan benefits the top 1%, while hardly giving the income of the middle class and the poor a boost. Bond prices and yields are inversely related (read: U.S. Treasury ETFs: What Lies Ahead?).
Tax Reform Plan
Per a vox.com article citing analysis by the nonpartisan Tax policy center, the tax reform plan would boost the incomes of the top 0.1% and 1% by 10.2% and 8.5% respectively. However, the incomes of the middle class and the poor will get a negligible boost of 1.2% and 0.5%, respectively.
Moreover, the tax reform is expected to increase the federal deficit by $2.4 trillion in the first decade alone. Therefore, the plan is expected to be a huge burden on the next government.
Fed Chair Nomination
President Donald Trump met multiple candidates for the post of the Fed chair, including Fed Governor Jerome Powell, former Fed governor Kevin Warsh, current Fed chair Janet Yellen and White House economic advisor Gary Cohn.
The highlight, however, was the meeting with former Fed governor Kevin Warsh. Reports of this meeting sent financial stocks and Treasury yields higher. The primary factor driving this was investors’ hopes of a potential Fed lead who shares the administration’s priorities of deregulation and further hikes in interest rates.
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 ETF (IEF - Free Report)
This fund seeks to provide exposure to intermediate term U.S. Treasury bonds.
With $7.90 billion in AUM, it charges a fee of 15 basis points a year. It has an effective duration of 7.57 years and a weighted average maturity of 8.33 years. The fund has returned 2.9% year to date but has lost 3.3% in a year (as of Sep 29, 2017). IEF currently has a Zacks ETF Rank #3 (Hold) with a High-risk outlook.
iShares U.S. Treasury Bond ETF (GOVT - Free Report)
This fund seeks to provide exposure to U.S. Treasury bonds in a wide-maturity spectrum.
It has AUM of $5.40 billion and charges a fee of 15 basis points a year. It has an effective duration of 6.03 years and a weighted average maturity of 7.56 years. The fund has returned 2.3% year to date but has lost 2.0% in a year (as of Sep 29, 2017). GOVT currently has a Zacks ETF Rank #3 with a Medium-risk outlook.
Vanguard Intermediate-Term Government Bond ETF (VGIT - Free Report)
This fund seeks to provide exposure to U.S. Treasury bonds in the 5-10 years maturity spectrum.
It has AUM of $1.34 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 5.6 years. The fund has returned 2.2% year to date but has lost 1.5% in a year (as of Sep 29, 2017). VGIT currently has a Zacks ETF Rank #3 with a Medium-risk outlook.
iShares 10-20 Year Treasury Bond ETF (TLH - Free Report)
This fund seeks to provide exposure to longe- term U.S. Treasury bonds in the 10-20 year maturity horizon.
It has AUM of $614.3 million and charges a fee of 15 basis points a year. It has an effective duration of 10.28 years and a weighted average maturity of 13.85 years. The fund has returned 3.9% year to date but has lost 4.5% in a year (as of Sep 29, 2017). TLH currently has a Zacks ETF Rank #3 with a High-risk outlook.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>