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What's Impacting Treasury ETFs?

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U.S. Treasury yields have been somewhat seesawing as a multitude of factors impact the markets at the moment. Treasury yields scaled higher to a more than four-year high as the week ahead will witness massive supply of government debt. Moreover, a broad recovery in crude prices is putting pressure on bond prices, as it leads to a spike in inflation. Bond prices move inverse to bond yields.

What’s Moving Yields?

Post the global financial crisis, low inflation coupled with the Fed’s bond buying program kept bond yields low. However, recent events have led to an increase in yields, as investors brace for higher inflation (read: ETFs to Benefit or Lose from Rising Yields).

U.S. 10-year yields moved above 3% for the first time since January 2014. The increase in yields has been driven by massive government debt and rising oil prices. The government is set to auction around $96 billion of debt this week, leading to excess supply of government debt. Wall Street took a hit as growing interest rate fears vexed investors.

WTI crude prices are breaking records. Increased geopolitical tensions seem to be the driving force for the increase. Reports of Iranian-backed Houthis in Yemen firing missiles on Saudi Arabia led to increased unrest in the region and stoked fears of supply disruption. As a result, rising crude prices might lead to an uptick in inflation and aggressive rate hikes.

CME’s Fed watch tool predicts two more rate hikes for the year. However, in case there is a steep increase in consumer prices, Fed’s stance might change. Moreover, per the Conference board, its consumer confidence index increased to 128.7 in April from a downwardly revised 127.0 in March. Strong optimism about the economy might exert more pressure on 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

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

With $8.5 billion in AUM, it charges a fee of 15 basis points a year. It has an effective duration of 7.48 years and a weighted average maturity of 8.31 years. The fund has lost 3.2% in a year and 3.5% year to date. IEF has a Zacks ETF Rank #4 (Sell) with a High risk outlook.

iShares U.S. Treasury Bond ETF GOVT

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 5.94 years and a weighted average maturity of 7.48 years. The fund has lost 1.6% in a year and 2.3% year to date. GOVT has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Vanguard Intermediate-Term Government Bond ETF VGIT

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

It has AUM of $1.7 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 lost 2.3% in a year and 2.3% year to date. VGIT has a Zacks ETF Rank #3 with a Medium risk outlook.

iShares 10-20 Year Treasury Bond ETF TLH

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

It has AUM of $529.7 million and charges a fee of 15 basis points a year. It has an effective duration of 10.45 years and a weighted average maturity of 14.41 years. The fund has lost 3.3% in a year and 4.6% year to date. TLH has a Zacks ETF Rank #4 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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