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Time to Buy Top-Ranked Intermediate Treasury ETFs?
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A few days back, cash-like ETFs were in high demand as coronavirus-led recessionary fears made liquidity the need of the hour. Thus, investors were selling their possessions to retain money. This was because it was then more important to cover day-to-day expenses now, more so at the time of no work and lockdowns since “it’s a psychological thing where people continue to sell for cash,” per chief market strategist at financial services firm AxiCorp (read: Invest in These Cash-Like ETFs).
A Bloomberg article noted that “at the height of the cash crunch earlier this month, traders were selling even their highest-quality bonds in an effort to raise funds to cover losses in other assets. That sparked demand for the perceived safety of cash-like short-term Treasuries, putting ETFs that track the securities on course for their best month ever.”
But within less than a month, investor behavior changed as the Fed opened the floodgate for liquidity. Failing to contain the coronavirus-led acute market rout by its crisis-era policy launch, the Fed announced a fresh set of stimuli on Mar 23. It said that the purchases of Treasury and mortgage securities are unlimited and it also agreed to buy investment-grade corporate bond ETFs. If this was not enough, there was $2 trillion worth of U.S. government’s pandemic stimulus.
Change in Bond Market Dynamics
Since the acute cash crisis was resolved by the authorities to some extent, investors started dumping cash-like money market ETFs. iShares 1-3 Year Treasury Bond ETF (SHY - Free Report) saw about$2.2 billion exodus in assets on Mar 27, its biggest one-day outflow since 2014, per Bloomberg. SPDR Portfolio Short Term Treasury ETF SPTS) also saw about $1.2-billion outflow, marking the fund’s largest withdrawal on record.
Apart from the Fed action, supplies for short-dated U.S. Treasury bonds are likely to ramp up soon, building pressure on front-end yields, per Rajappa, SocGen’s head of U.S. rates strategy. Both factors took the spotlight away from short-term bond ETFs.
But are long-term bond ETFs in investors’ favor? Probably not! If you study the Treasury yield curve, you would find that the yield on 20-year and 30-year U.S. Treasury bonds have gone up since Mar 27, implying subdued price performance in the space.
Yields have been declining mainly for the five-year and seven-year Treasury bonds. Benchmark Treasury yield has also been low. This shows that the bear market rally that was staged in March-end does not have legs and investors are still seeking safety trades like intermediate U.S. Treasury bonds.
Against this backdrop, investors can bet on some top-ranked intermediate Treasury ETFs. The options are:
The underlying ICE U.S. Treasury 7-10 Year Bond Index measures the performance of public obligations of the U.S. Treasury that has a remaining maturity of greater than seven years and less than or equal to 10 years. It charges 15 bps in fees.
Schwab Intermediate-Term U.S. Treasury ETF (SCHR - Free Report)
The underlying Bloomberg Barclays U.S. 3—10 Year Treasury Bond Index includes all publicly-issued U.S. Treasury securities that have a remaining maturity of greater than or equal to three years and less than 10 years, are rated investment grade, and have $250 million or more of outstanding face value. It charges 5 bps in fees.
The underlying Bloomberg Barclays US Treasury 3-10 Year Bond Index includes fixed income securities issued by the U.S. Treasury with maturities between 3 and 10 years. It also charges 5 bps in fees.
The underlying ICE U.S. Treasury 3-7 Year Bond Index assesses U.S. Treasury issued debt. Only U.S. dollar denominated, fixed rate securities with minimum term to maturity greater than three years and less than or equal to seven years are included. It charges 15 bps in fees.
SPDR Portfolio Intermediate Term Treasury ETF (SPTI - Free Report)
The underlying Bloomberg Barclays 3-10 Year U.S. Treasury Index is designed to measure the performance of intermediate term, 3-10 years, public obligations of the U.S. Treasury. It charges 6 bps in fees.
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Time to Buy Top-Ranked Intermediate Treasury ETFs?
A few days back, cash-like ETFs were in high demand as coronavirus-led recessionary fears made liquidity the need of the hour. Thus, investors were selling their possessions to retain money. This was because it was then more important to cover day-to-day expenses now, more so at the time of no work and lockdowns since “it’s a psychological thing where people continue to sell for cash,” per chief market strategist at financial services firm AxiCorp (read: Invest in These Cash-Like ETFs).
A Bloomberg article noted that “at the height of the cash crunch earlier this month, traders were selling even their highest-quality bonds in an effort to raise funds to cover losses in other assets. That sparked demand for the perceived safety of cash-like short-term Treasuries, putting ETFs that track the securities on course for their best month ever.”
But within less than a month, investor behavior changed as the Fed opened the floodgate for liquidity. Failing to contain the coronavirus-led acute market rout by its crisis-era policy launch, the Fed announced a fresh set of stimuli on Mar 23. It said that the purchases of Treasury and mortgage securities are unlimited and it also agreed to buy investment-grade corporate bond ETFs. If this was not enough, there was $2 trillion worth of U.S. government’s pandemic stimulus.
Change in Bond Market Dynamics
Since the acute cash crisis was resolved by the authorities to some extent, investors started dumping cash-like money market ETFs. iShares 1-3 Year Treasury Bond ETF (SHY - Free Report) saw about$2.2 billion exodus in assets on Mar 27, its biggest one-day outflow since 2014, per Bloomberg. SPDR Portfolio Short Term Treasury ETF SPTS) also saw about $1.2-billion outflow, marking the fund’s largest withdrawal on record.
Apart from the Fed action, supplies for short-dated U.S. Treasury bonds are likely to ramp up soon, building pressure on front-end yields, per Rajappa, SocGen’s head of U.S. rates strategy. Both factors took the spotlight away from short-term bond ETFs.
But are long-term bond ETFs in investors’ favor? Probably not! If you study the Treasury yield curve, you would find that the yield on 20-year and 30-year U.S. Treasury bonds have gone up since Mar 27, implying subdued price performance in the space.
Yields have been declining mainly for the five-year and seven-year Treasury bonds. Benchmark Treasury yield has also been low. This shows that the bear market rally that was staged in March-end does not have legs and investors are still seeking safety trades like intermediate U.S. Treasury bonds.
Against this backdrop, investors can bet on some top-ranked intermediate Treasury ETFs. The options are:
iShares 7-10 Year Treasury Bond ETF (IEF - Free Report)
The underlying ICE U.S. Treasury 7-10 Year Bond Index measures the performance of public obligations of the U.S. Treasury that has a remaining maturity of greater than seven years and less than or equal to 10 years. It charges 15 bps in fees.
Schwab Intermediate-Term U.S. Treasury ETF (SCHR - Free Report)
The underlying Bloomberg Barclays U.S. 3—10 Year Treasury Bond Index includes all publicly-issued U.S. Treasury securities that have a remaining maturity of greater than or equal to three years and less than 10 years, are rated investment grade, and have $250 million or more of outstanding face value. It charges 5 bps in fees.
Vanguard Intermediate-Term Treasury ETF (VGIT - Free Report)
The underlying Bloomberg Barclays US Treasury 3-10 Year Bond Index includes fixed income securities issued by the U.S. Treasury with maturities between 3 and 10 years. It also charges 5 bps in fees.
iShares 3-7 Year Treasury Bond ETF (IEI - Free Report)
The underlying ICE U.S. Treasury 3-7 Year Bond Index assesses U.S. Treasury issued debt. Only U.S. dollar denominated, fixed rate securities with minimum term to maturity greater than three years and less than or equal to seven years are included. It charges 15 bps in fees.
SPDR Portfolio Intermediate Term Treasury ETF (SPTI - Free Report)
The underlying Bloomberg Barclays 3-10 Year U.S. Treasury Index is designed to measure the performance of intermediate term, 3-10 years, public obligations of the U.S. Treasury. It charges 6 bps in fees.
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 >>