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What's in Store for the U.S. Treasury Bond ETFs?

Mutual Fund Report for PGOFX

U.S. Treasury yields fell to post-election lows, driving Treasury prices higher, as rising geopolitical risks made investors shift to safe haven investments. Bond prices and yields move inverse to each other (read: Low Volatility ETFs to Buy If North Korea Tensions Flare Up).


Most recently, North Korea tested another ballistic missile which flew over the Japanese territory. This led to a decline in the greenback. Moreover, rising concerns about hurricane Harvey also weighed on the dollar and government bond yields, as the worst storm since 2005 has caused a halt in energy production in the United States’ oil refining nerve centre (read: Gasoline ETF Jumps on Storm Harvey).


Despite geopolitical worries lessening a bit, the missile test did little to alleviate those fears. The war of words between North Korean premier Kim Jong-Un and his U.S. counterpart Donald Trump has increased volatility in the markets. Rising concerns led to a rally in havens like Euro, Japanese yen and gold (read: U.S. Equities See Record Outflows: ETFs in Focus).


Fear gauge VIX stood at more than 20% on account of this latest threat. The North Korean leader went to the extent of marking this test as a prelude to the fate of Guam if Trump does not stop his threats.


The markets got a little respite as investors came to terms with the string of events. The S&P 500 and dollar pared some of its earlier losses on account of lack of a strong counter comment by Trump and strong economic data.


Consumer confidence in the United States increased to 122.9 from 120 in July and above market estimates of 120.7. Moreover, a gauge of consumer expectations increased to 104 from 103. This is representative of strong confidence in people with regard to their future financial condition.


The UN termed this action by Pyongyang as outrageous and the US ambassador to the UN, Nikki Haley, responded that tough action is required in response to North Korea’s continuous missile tests.


Moreover, there is high uncertainty with regard to the possibility of further rate hikes by the Federal Reserve owing to the low inflation figures. The markets expect the Fed to announce its plans of trimming its $4.5 trillion balance sheet as early as September.


Adding to the agony, the unpredictable nature of the North Korean dictator makes it difficult to predict the future course of this prevailing set of events.


 Let us now discuss a few ETFs focused on providing exposure to U.S. treasuries.


iShares 7-10 Year Treasury Bond ETF IEF


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


It has AUM of $7.52 billion and charges a fee of 15 basis points a year. It has an effective duration of 7.48 years and a weighted average maturity of 8.19 years. The fund has returned 3.19% year to date but has lost 3.35% in the last one year. IEF currently has a Zacks ETF Rank #3 (Hold) 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 $4.96 billion and charges a fee of 15 basis points a year. It has an effective duration of 5.99 years and a weighted average maturity of 7.50 years. The fund has returned 2.25% year to date but has lost 2.52% in the last one year. GOVT currently has a Zacks ETF Rank #3 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 5-10 years maturity spectrum.


It has AUM of $1.32 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 5.50 years. The fund has returned 2.17% year to date but has lost 1.98% in the last one year. VGIT currently 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 $512.94 million and charges a fee of 15 basis points a year. It has an effective duration of 10.19 years and a weighted average maturity of 13.71 years. The fund has returned 4.39% year to date but has lost 4.67% in the last one year. TLH currently has a Zacks ETF Rank #3 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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