US Treasury ETFs Gain, Oil Loses On Europe
May 31, 2012
U.S. Treasury ETFs gained ground Thursday, adding to what has been a strong performance in recent weeks, as investors continue to flock to the safety of U.S.-dollar linked debt as a way of protecting themselves against the rising uncertainties surrounding Europe’s financial stability.
The wave of bond buying pushed yields on 10-year Treasurys to a record low of 1.54 percent at one point Thursday. When bond prices rise, yields go down, hence the strong price gains of many bond ETFs.
Anxiety about the future of debt-gorged Greece has now spread to renewed concern about Spanish banks and rising borrowing costs for Italy, both of which are considered too big to save. Oil demand risks falling in the worst-case scenario, and sagging oil and commodities ETFs were a clear sign of investor concern.
Broad stock indexes, such as the Dow Jones industrial average, have been sinking in recent weeks as well. The Dow closed 26.41 lower on Thursday at 12,393.45, and fell 6.2 percent in May, making it the worst month for the index in two years, according to the Wall Street Journal.
Rising Bond ETFs
The iShares Barclays 20+ Year Treasury Bond Fund (NYSEArca: TLT), one of the bigger Treasury ETFs on the market today, and one that’s often benefited from flight-to-safety flows, was up 1 percent on the day, and has now risen more than 9 percent in the past month alone.
Other popular Treasury ETFs such as the iShares Barclays 7-10 Year Treasury Bond Fund (NYSEArca: IEF) and Pimco’s 7-15 Year U.S. Treasury Index Fund (NYSEArca: TENZ) also increased Thursday, with their prices up by more than 3 percent in the past month.
Oil ETFs Sink
On the flip side, ETFs focused on oil and commodities in general continued to move lower as investors appeared to be battening down the hatches in fears that the eurozone debt crisis could be headed for the brink.
The United States Oil Fund (NYSEArca: USO) was down 1 percent Thursday after having shed more than 3.5 percent the day before amid growing views that Europe’s problems risked causing a much broader slowdown in the global economy which, among other things, implies slowing energy demand.
In the last month, USO has bled nearly 19 percent of its value.
The price of nearby crude futures on the New York Mercantile Exchange has fallen more than 12 percent this year, including a 1.27 percent drop today that brought prices to $86.55 per barrel.