Doubting Thomases Bolster Treasury Bond ETFs

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) -- Wasn't it just a week ago when the 10-year treasury yield pushed 2.3%? Wasn't it just a few days back when bond vigilantes piled into ETFs like ProShares UltraShort 20+ Year Treasury ( TBT)?Apparently, fearful investors needed little more than a single unimpressive jobs report to justify returning to a favorite safe haven. In fact, iShares Barclays 20+ Year Treasury ( TLT) recovered a key short-term (50) trendline; TLT also bounced off its long-term, 200-day moving average.

Over the prior six months, Treasury Bond ETFs across the spectrum were down anywhere from 0% to -4%. When compared to a 20% gain for the S&P 500 SPDR Trust ( SPY), low-yielding treasuries may have seemed highly undesirable.

Keep in mind, however, that bond mutual funds attracted a staggering $62 billion in 2012 already. Stock mutual funds? They actually experienced a slight outflow of $1.6 billion.

It follows that the Doubting Thomases do not see a recovery quite the way that the Jim Cramers, Bob Dolls and Warren Buffetts of the world do. And while the doubters may have been wrong by a few percentage points during the risk-on rally off of the October lows, they were surprisingly successful for 2011 as a whole.

The question now is... how will the Fed interpret the state of employment in the U.S.? If the Bernanke Federal Reserve believes unemployment is in danger of creeping higher, it may aim to aid employment via additional quantitative easing measures. That would keep treasury bonds stable, if not on a course for additional appreciation. Or if there's a flare-up of the European debt crisis, we'd also see a flight to perceived quality a la treasury bonds.

When will U.S. Treasuries lose? When the economy picks up significant steam or inflation gets out of control. One or both might result in rising rates where the Fed would be forced to change course. Until then, however, the Doubting Thomases might not have reason to worry about nesting in the comfy confines of double-A U.S. government debt.

Here are the performance percentages for popular Treasury Bond ETFs over five days and six months:

Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.

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