Is it time to buy cheap Treasury bond ETFs?

Jhe Treasury market took a beating after a spike in inflation weighed on real yields and a hawkish Federal Reserve raised interest rates. The sell-off may have been overdone and investors could start picking up a bargain in Treasury bill exchange-traded funds.

Since the beginning of the year, the Vanguard Extended Duration Treasury ETF (NYSEARCA:EDV) fell by 18.2%, the SPDR Portfolio Long Term Treasury ETF (NYSEArca: SPTL) decreased by 17.5% and iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) fell 18.2%.

A Bloomberg index of long-term U.S. government bonds has fallen more than 18% this year, on pace with its biggest fall on record since 1973, reports the Financial Times.

Meanwhile, falling bond prices pushed yields on benchmark 10-year Treasuries to multi-year highs of nearly 3% in the face of a rapid tightening of monetary policy by the Fed to rein in levels of interest. high inflation for four decades. Bond prices have yields that have an inverse relationship.

Meanwhile, market watchers wonder how far yields can continue to rise if inflation and rising rates aimed at tackling rising consumer prices could cause an economic downturn, which would only benefit to safe-haven assets such as government bonds.

“We consider the current 10-year level [US yields] as an essential place [to buy the debt]according to rate strategists at Bank of America. “Inflation concerns have reached a level of mania or panic,” the bank said, citing “extreme” inflows into inflation-protected bonds, as well as an increase in internet searches for “the ‘inflation”.

“Our forecast indicates that inflation will peak this quarter and fall steadily through 2023. We believe this will reduce the level of panic around inflation and allow rates to come down,” Bank of America added.

The more attractive yields after the recent price drop are also bringing some fund managers back.

“My God, they’re high enough now to buy,” Edward Al-Hussainy, senior interest rate strategist at Columbia Threadneedle, told the Financial Times. “This is what we do.”

“I don’t think you can be certain this is the top until you get a signal from the Fed that they’ve gone over, or you get a correction in risk assets,” Al-Hussainy adds. .

Dickie Hodges, bond fund manager at Nomura Asset Management and a former bearish bond investor, says he’s “added small bits of exposure” to later-maturity bonds with rising yields.

“I think it’s too early to call the top of yields right now,” Hodges told the Financial Times. “But central bankers know that a substantial increase in interest rates from these levels will push economies into recession. term are starting to look attractive.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Lee J. Murillo