This article was originally published on ETFTrends.com.
As the Turkish lira exhaled by gaining against the U.S. dollar today, the Dow Jones Industrial Average inhaled the contagion caused by Turkey's economic crisis with a loss of over 150 points as of 3:15 p.m. ET. The market pandemic felt around the globe didn't leave benchmark U.S. Treasury yields resistant to its effects as they were all knocked down across the board.
The benchmark 10-year yield fell to 2.851 while the 30-year yield edged lower to 3.024. Meanwhile, yields with shorter terms like the 2-year as well as the 5-year also fell to 2.604 and 2.724, respectively.
"The story for this week is clearly centered on Turkey, tariffs, the dollar, and weakness in the equity market," said Kevin Giddis, head of fixed income capital markets at Raymond James. "The economic data all but confirms that the U.S. economy is strong, but long-end investors prefer to trade with August data vs. July, so they merely shrugged it off and focused on a 'flight to quality' trade…with legs."
Low interest rate levels, high inflation and geopolitical tensions have been weighing heavily on Turkey's economy. In addition, U.S.President Donald Trump imposed sanctions on Turkey’s interior and justice ministers just last week for their role in the internment of U.S. pastor Andrew Brunson as well as other Americans for terrorism.
Turkey is also feeling the pangs of President Donald Trump's decision to impose tariffs of 25% on imported steel and 10% on imported aluminum--President Trump doubled down on the tariffs with the announcement that tariffs would be hiked to 50% and 20%.. Turkey is threatening to hit the U.S. with its own wave of tariffs on cotton - a staple input for Turkey's high-exporting garment industry.
The Turkish lira got a boost today with news that Qatar was throwing a life vest to Turkey in the form of a $15 billion loan to help keep its banking sector afloat. This effectively prevents Turkey from having to ask the International Monetary Fund for emergency assistance.
Fixed-Income Safe Havens
With safe-haven government debt ticking lower, corporate bond ETFs like the iShares iBoxx $ Invmt Grade Corp Bd ETF (LQD) gained. LQD capitalized on benchmark Treasury yield weakness, gaining 0.19% and 0.38% within the past five days.
LQD seeks to track the investment results of the Markit iBoxx® USD Liquid Investment Grade Index composed of U.S. dollar-denominated, investment-grade corporate bonds. LQD allocates 95 percent of its total assets in investment-grade corporate bonds to mitigate credit risk.
Related: Possible Carnage in the Bond Market
For more trends in fixed income, visit the Fixed Income Channel.
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