The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (ETF Expert) -- The iShares 20+ U.S. Treasury Bond Fund (TLT) has often exhibited wider daily trading swings than the S&P 500 SPDR Trust (SPY).
This quirk alone has made it difficult for me to embrace the long end of the Treasury bond curve.
Instead, I've been more apt to stick with intermediate investment-grade corporate credit, as well as short-term and long-term high-yield corporate bonds. Granted, governments and central banks can print paper or create an electronic equivalent out of thin air. Yet corporate balance sheets also benefit when a central bank pursues an "easy money" policy.
Indeed, virtually all of the income ETFs in my client portfolios have been successful producers. Even as capital appreciators, each sits at or near 52-week highs.
I am talking about vehicles such as iShares Intermediate Corporate Credit (CIU)
, Guggenheim BulletShares 2015 High Yield Corporate (BSJF)
and SPDR Barclay High Yield Bond (JNK)
. I am also talking about taxable-advantaged winners such as PowerShares National Muni (PZA)
, and opportunistic purchases such as Guggenheim Multi-Asset Income (CVY)
and PowerShares CEF Income (PCEF)
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I've been exceptionally pleased by the low-risk/reasonable reward associated with the above-mentioned income producers. And yet, I freely acknowledge having underestimated the ongoing appeal of Treasuries.
Earlier, I mentioned one reason that I avoided them: volatility at the long end of the curve. I also imagined that price gains for the ETFs would be limited by record low yields. What's more, any sign of inflation, better-than-anticipated economic growth, foreign government reluctance to acquire double-A-rated sovereign debt and/or change in Federal Reserve
monetary policy could have adverse effects on the asset class.
Equally compelling, the CBOE Volatility index (VIX) relative to the S&P 500 SPDR Trust has trended lower for seven months. With the fear in the "fear gauge" waning and stock assets gaining, wouldn't it be reasonable to expect investors to leave Treasury bond ETFs and shift into stock ETFs?
Reasonable analysis or not, Treasury Bond ETFs like iShares 7-10 Year Treasury (IEF)
are sitting near 52-week highs. In other words, buyers of safe-haven assets are as dedicated as risk-on purchasers of S&P 500
stock assets. Maybe more so!
With the CBOE VIX Volatility near 52-week lows and the S&P 500 near 52-week highs, it may be difficult to pin the reason for Treasury bond popularity on investor fear. Equally likely, investors are buying what the Federal Reserve is buying; that is, if the central bank is purchasing shares in the middle of the curve, maybe you should too. It has been both profitable and safe.
Regardless of why U.S. Treasury Bond ETFs are popular -- whether investors are "following the Fed," avoiding stocks, or embracing non-European sovereign debt -- the uptrend remains intact. And for some folks, nothing else matters.
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