After months of decline, Treasuries are back in favor, recording the best week of the year as inflation fears abate. 10-year yields fell to 1.43%, the lowest level since early March, ignoring hot inflation data, which showed the core consumer price index rose 5% year-on-year in May, the highest level since 2008 (read: Core inflation at the highest for 29 years: 6 ETF zones to benefit).
Indeed, the Fed viewed inflation as temporary given the reopening of the economy and lower readings last year. The central bank currently buys at least $ 120 billion in bonds each month and has kept short-term benchmark rates close to zero. As millions of Americans are now fully vaccinated and pandemic restrictions are relaxed, the US economy is on a solid recovery track and leading to spike in inflation.
Additionally, short positions in Treasuries hit their highest level last week since 2018, according to the latest data from JP Morgan. The unwinding flattened the yield curve and this short hedging fueled the bond rally.
So Treasury ETFs gained last week. We have highlighted five of those who led the way above. These have an unfavorable Zacks ETF 4 (sell) or 5 (strong sell) rating (see: all government bond ETFs here):
ETF PIMCO 25+ Year Zero Coupon US Treasury Index (ZROZ – Free Report) – Up 2.5%
This ETF tracks the BofA Merrill Lynch Long Treasury Principal STRIPS index and has 22 securities in its basket. The effective maturity and effective duration of the fund are 27.28 years. This fund has a decent level of $ 355.3 million in assets under management and a light average daily volume of 56,000 stocks. It charges 15 basis points as an annual fee.
iShares 25+ Year Treasury STRIPS Bond ETF (GOVZ – Free Report) – Up 2.5%
This fund offers exposure to the US principal STRIPS (Separate Trading of Registered Interest and Principal Securities) with remaining maturities of at least 25 years. It follows the ICE BofA Long US Treasury Principal STRIPS index, with 14 bonds in its basket. The fund has an average maturity of 27.28 years and an effective duration of 26.97 years. It has amassed $ 387 million in its asset base and charges 7 basis points in fees per year. GOVZ trades an average daily volume of 410,000 shares (read: 3 ETFs to hedge against inflation).
Vanguard Extended Life Treasury ETF (VED – Free Report) – Up 2.1%
This fund provides long-term exposure to the Treasury STRIPS market by tracking the Bloomberg Barclays US Treasury STRIPS 20-30 Year Equal Per Bond index. It holds 80 bonds with an average maturity of 24.7 years and an average duration of 24.4 years. The expense ratio is 0.07%. The product has $ 1 billion in assets under management and sees good volume of 258,000 shares per day, on average.
IShares 20+ Year Treasury Bond ETF (TLT – Free Report) – Up 1.7%
It is the most popular and liquid ETF in the long-term bond space with $ 13.4 billion AUM and an average daily volume of 12.1 million shares. It follows the ICE US Treasury 20+ Year Bond Index, holding 34 securities in its basket. The fund has an average maturity of 26.28 years and an effective duration of 18.81 years. It charges 15 basis points of fees per year.
SPDR Portfolio Long Term Treasury ETF (SPTL – Free Report) – Up 1.6%
This fund tracks the Bloomberg Barclays Long US Treasury Index, charging investors a 6bp annual fee. She holds 67 bonds in her basket with an average maturity of 24.33 years and an adjusted duration of 18.83 years. SPTL is one of the popular choices in the long-term treasury space with $ 3.6 billion AUM and an average daily volume of 1.8 million shares.
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