U.S. Treasury bonds, especially the long-dated ones, have gained popularity lately especially in the wake of declining yields and demand for safe haven amid global slowdown concerns.
Declining Yields U.S. Treasury yields logged in the largest weekly decline of 2019 with 10-year yields tumbling as low as 2.42% and the three-month yields falling to 2.455% last week. With this, the spread between yields of three-month Treasury bills exceeded those of 10-year notes for the first time since 2007, causing an inverted yield curve (long-term rates fall below short-term). This historically signals an upcoming recession (read: Fear an Inverted Yield Curve? Short Financial Stocks With ETFs). The sharp decline in short-term yields came on the back of the Fed’s more-than-expected dovish view that has set the stage for a bond rally. The central bank said in its latest FOMC meeting that there will be no rate hike for this year, citing softness in the U.S. economy. VIDEO
Global Growth Concerns Rounds of downbeat data across the globe have escalated fears of a global slowdown. This is particularly true as the eurozone manufacturing sector activity in March contracted at the fastest pace in nearly six years, per the latest IHS/Markit research data. German manufacturing activity growth was the weakest in six and a half years while France’s private sector also sank. Additionally, the U.S. manufacturing sector Flash Purchasing Managers' Index (PMI) tumbled to its lowest level in nearly two years. The bleak data confirmed the trend of sharply decelerating global economy, and has pushed down the long-term yields (read: 4 Safe Haven ETFs to Escape Recession Warnings). Moreover, uncertainty surrounding Britain’s exit from the European Union as well as the yet-to- materialize trade deal weigh over global growth, resulting in flight to safety in long-dated U.S. Treasuries. 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 that are surging the most on the current chaos. These funds have a favorable Zacks ETF Rank of #3 (Hold) and look interesting, especially as long as global growth worries prevail (see: all the Government Bond ETFs here). Vanguard Extended Duration Treasury ETF ( EDV - Free Report) 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 82 bonds with effective maturity of 25.2 years and average duration of 24 years. Expense ratio comes in at 0.07%. The product has amassed $972.6 million in its asset base while sees moderate volume of 131,000 shares per day on average. It has added 3.9% in a week. SPDR Portfolio Long-Term Treasury ETF ( SPTL - Free Report) This fund tracks the Bloomberg Barclays Long U.S. Treasury Index, charging investors 6 bps in annual fees. It holds 50 bonds in its basket with average maturity of 25.06 years and adjusted duration of 17.59 years. SPTL is one of the popular choices in the long-term Treasury space with AUM of $1.6 billion and average daily volume of 834,000 shares. SPTL is up 2.8% in a week. iShares 20+ Year Treasury Bond ETF ( TLT - Free Report) This is the most popular and liquid ETF in the long-dated bond space with AUM of $10 billion and average daily volume of 9 million shares. It tracks the ICE U.S. Treasury 20+ Year Bond Index, holding 34 securities in its basket. The fund has average maturity of 25.39 years and effective duration of 17.48 years. It charges 15 bps in fees per year and has gained 2.8% in the same time frame (read: Muni Bonds Off to Best Start Since 2006: 5 Hot ETFs to Buy). Vanguard Long-Term Government Bond ETF ( VGLT - Free Report) With AUM of $825.1 million, this fund follows the Bloomberg Barclays U.S. Long Treasury Bond Index. It holds 50 bonds in its basket with effective maturity of 25.5 years and average duration of 17.1 years. The ETF trades in good volumes of around 1198,000 shares and has 0.07% in expense ratio. The product is up 2.7% over the past week. iShares 10-20 Year Treasury Bond ETF ( TLH - Free Report) This fund tracks the performance of the ICE U.S. Treasury 10-20 Year Bond Index and holds 13 bonds in its basket. Average maturity and effective duration come in at 16.12 years and 11.65 years, respectively. TLH has accumulated $968 million in its asset base while trading in lower volumes of 87,000 shares a day on average. It charges 15 bps in annual fees and has gained 2% over the past week. 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 >>