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Treasury ETFs Hit Multiyear Lows as Benchmark Yield Nears 3%


U.S. government bonds were down again Thursday as yields on the benchmark 10-year note almost touched 3% and intermediate-term Treasury ETFs fell to new multiyear lows.

For example, iShares 3-7 Year Treasury Bond ETF (IEI) and iShares 7-10 Year Treasury Bond ETF (IEF) are trading at their lowest prices since 2011. IEI saw the second-highest outflow among U.S.-listed ETFs last month with redemptions of more than $2.3 billion, according to IndexUniverse data.

Yields on the 10-year note have spiked to nearly 3% from about 1.6% in early May on expectations the Federal Reserve will pull back from its bond-buying program.

The iShares 20+ Year Treasury Bond ETF (TLT) is down more than 10% year to date. Bond prices and yields move in opposite directions.

U.S. Treasuries suffered their fourth consecutive monthly loss in August. “Altogether, there is plenty of scope for 10-year yields not just to breach the psychologically key 3% barrier – a level unseen since July 2011 – but to overshoot and notch further multi-year highs in coming months,” Reuters reports.

Treasury yields were rising Thursday following a report that weekly jobless claims declined more than expected. Also Thursday, private-sector jobs rose by 176,000 in August, MarketWatch reports. [Stock ETFs Look to Jobs Report]

On Friday, markets will get the August employment report and investors are looking ahead to the Federal Reserve policy meeting later this month. [With Fed Meeting Looming, Sep-Taper Fears Rise]

The two-year high in Treasury yields “is just a growing confidence on the part of the bond market that a Sept. 18 tapering announcement is coming,” said Adrian Miller, director of fixed-income strategies at GMP Securities, in a Bloomberg report. “That thesis has been supported by the ADP, which is good enough, despite the miss and the jobless claims that bested estimates.”

“We’ve had a strong move to the upside” in yields, added Karsten Linowsky, a fixed-income strategist at Credit Suisse Group. “Everyone is waiting for these events, like the payrolls and the Fed meeting, and that’s why we’ve seen pressure to the upside in yields.”

iShares 7-10 Year Treasury Bond

Full disclosure: Tom Lydon’s clients own TLT.

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