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Yields Surge, Bond ETFs Fall

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Yields Surge, Bond ETFs Fall

The U.S. 10-year Treasury bond surged Thursday above 2 percent, marking the biggest two-day gain since mid-February. The big move was fueled by weak demand during the Treasury bond auction Thursday when they sold $29 billion in seven-year notes at a yield of 1.79 percent.

Demands And Bonds

The demand of bonds is indicated by the bid-to-cover ratio, which was down to 2.32 from an average of 2.50. Weak demand results in lower bond prices, which has an inverse relationship to bond yields, and thus higher rates were the end result.

Another force moving the 10-year yield is the increased demand by foreign bond investors seeking higher yields here in the U.S. The eurozone is in full QE (quantitative easing) mode, which is the process of the European Central Bank buying government bonds to push the price up and yields down in order to aid the economy. Many foreign investors seeking a safe haven with higher yields have turned to U.S. Treasuries amid the low rates and chaos within the eurozone.

The seven-year Treasury traded up to 1.78 percent, while the 30-year Treasury yield surged up to 2.60 percent from lows of 2.44 on Wednesday.

Related Link: 20+ Year Treasury Bond ETF Collapsing: A Technical Look

Highlighted below three large-bond ETFs that were negatively affected by the sell-off in U.S. government bonds.

iShares 20+ Year Treasury Bond

The iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSE: TLT) offers investors exposure to 29 long-term U.S. bonds. Over the last 12 months the ETF is up 19 percent and up 13 percent over the last six months. However, on Thursday, the ETF fell almost 2 percent.

The ETF offers a 30-day SEC yield of 2.44 percent and has an expense ratio of 0.15 percent.

iShares 7-10 Year Treasury Bond

The iShares Barclays 7-10 Year Trasry Bnd Fd (NYSE: IEF) provides exposure to 20 intermediate-term U.S. government bonds. IEF is up 6 percent over the last 12 months and up 5 percent over the last six months. On Thursday, the ETF fell by 0.50 percent.

The bond ETF offers a 30-day SEC yield of 1.85 percent and has an expense ratio of 0.15 percent.

Vanguard Intermediate-Term Government Bond

The Vanguard Intmdte Tm Govt Bd ETF (NASDAQ: VGIT) is made up of 163 bonds with maturities between three and 10 years. The maturity breakdown of the portfolio has 47 percent of the bonds with maturities between three and five years and 52 percent of the bonds have maturities between five and 10 years. The ETF is up 3 percent over the last 12 months and up 3 percent over the last six months as well. On Thursday, the ETF was down less than 0.3 percent.

The ETF has a 30-day SEC yield of 1.51 percent and an expense ratio of 0.12 percent.

 

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