Wall Street has been rejoicing for the past two months with the unprecedented U.S. central bank and government stimulus. Many have hoped for a V-shaped recovery, especially after the surprisingly upbeat May jobs report and some better-than-expected economic data points.
However, in the latest policy latest, Federal Reserve Chair Jerome Powell poured some cold water on the extra-euphoric Wall Street bulls, saying “millions” of people will not able to resume work for some time because of the aftershocks to businesses from the COVID-19 crisis.
The Fed now expects the U.S. unemployment rate to hit 9.3% this year, dropping to 6.5% in 2021 and declining further to 5.5% in 2022. The unemployment rate in May dropped to 13.3% from 14.7% in April. Before the pandemic, the U.S. unemployment rate was hovering near the 50-year lows of around 3.6%.
The Fed sees American GDP falling by 6.5% in 2020 before rising by 5.0% in 2021 and 3.5% in 2022. The projections and Fed comments hint that the coronavirus-led economic crisis is far from over. All these could keep safe-haven investing steady ahead.
Great Time for Treasury ETF Investing
The Fed reiterated that the Fed funds rate would stay in the 0% to 0.25% range for the foreseeable future and confirmed continued bond-buying. The 10-year Treasury yield marked the biggest decline in eight weeks after the Fed signalled that rates will remain at zero until 2022. The yield on the benchmark U.S. Treasuries fell to 0.75% on Jun 10, from 0.84% recorded in the day earlier.
Also, the Fed may renew its World War II-era policy of capping yields on U.S. government debt. Market experts are of view that the Fed may opt for yield curve control as a next step to shore up the financial markets. Powell added that the effectiveness of yield curve control “remains an open question.”
Notably, yield curve control involves direct bond purchases of longer-dated U.S. government debt until those bond yields – are held below targeted levels. The Fed has followed this before between 1942 and 1951, targeting a ??? percent rate on three-month Treasury bills and a 2.5% yield on long-term bonds.
All in all, many believe that the bear market rally that was staged in March-end does not have legs and investors are still seeking safety trades like U.S. Treasury bonds. Against this backdrop, investors can bet on some top-ranked intermediate Treasury ETFs. The options are:
iShares 7-10 Year Treasury Bond (NYSE:IEF) ETF IEF
The underlying ICE (NYSE:ICE) U.S. Treasury 7-10 Year Bond Index measures the performance of public obligations of the U.S. Treasury that has a remaining maturity of greater than seven years and less than or equal to 10 years. It charges 15 bps in fees.
Vanguard Intermediate-Term Treasury ETF VGIT
The underlying Bloomberg Barclays (LON:BARC) US Treasury 3-10 Year Bond Index includes fixed income securities issued by the U.S. Treasury with maturities between 3 and 10 years. It also charges 5 bps in fees.
iShares 20+ Year Treasury Bond (NASDAQ:TLT) ETF (TLT)
This is the most popular and liquid ETF in the long-dated bond space with AUM of $17.4 billion. It tracks the ICE U.S. Treasury 20+ Year Bond Index. The fund charges 15 bps in fees.
Vanguard Extended Duration Treasury ETF (EDV)
This fund provides exposure to the long-term Treasury STRIPS market by tracking the Bloomberg Barclays U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index. The fund charges 7 bps in fees.
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iShares 20 Year Treasury Bond ETF (TLT): ETF Research Reports
iShares 710 Year Treasury Bond ETF (IEF): ETF Research Reports
Vanguard IntermediateTerm Treasury ETF (VGIT): ETF Research Reports
Vanguard Extended Duration Treasury ETF (EDV): ETF Research Reports
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