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Risk-Off Sentiment Propels Treasury Bond ETFs

This article was originally published on ETFTrends.com.

Government bonds and Treasury-related exchange traded funds continued to strengthen Friday as fearful investors turn to safe-haven assets.

On Friday, the PIMCO 25+ Year Zero Coupon US Treasury Index ETF (NYSEArca: ZROZ) 1.0%, Vanguard Extended Duration Treasury ETF (EDV) gained 1.0% and  iShares 20+ Year Treasury Bond ETF (TLT) increased 0.7%. The three long-term Treasury bond ETFs also broke back above their short-term trend lines at the 50-day simple moving average.

The yields on the benchmark 10-year Treasury note dipped to 2.93% while yields on 30-year Treasuries were hovering around 3.09%.

Yields dipped after the Commerce Department revealed orders for durable goods - products designed to last at least three years, such as computers and machinery - dropped 1.7% month-over-month to a seasonally adjusted $248.5 billion in April, the Wall Street Journal reports.

Rising Risks Dissuade Investors

Supporting the recent strength among government bonds, many investors and analysts have grown wary of the balance of risks facing the economy, which have grown less favorable this week.

For example, President Donald Trump wants to impose new tariffs on auto imports, which could cause slower growth by triggering retaliatory measures from auto exporters like Germany, Japan and South Korea. The U.S. Commerce Department is looking at a scenario where it would raise tariffs to up to 25% on auto imports on the basis of national security.

Additionally, the Institute for Supply Management revealed that U.S. factory activity slowed in April compared with earlier in the year, attributing the deceleration in part to uncertainty over U.S. trade policy.

Demand for safe-haven plays like Treasuries also spiked in response to President Donald Trump's sudden withdrawal from talks with North Korean leader Kim Jong Un. The reversal has shifted the U.S. approach to North Korea to a campaign of military and economic pressure.

“We’ve got political uncertainty in Europe, we’ve got geopolitical concerns the Trump calling off his date with Kim Jong Un,” Ian Lyngen, head of U.S. government bond strategy at BMO Capital Markets, told the WSJ. “The potential for international trade to be hurt by the administration’s tariff tantrums is real.”

For more information on the fixed-income market, visit our bond ETFs category.