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If The Economy Is Improving, Why Are Investors Pricing In A Slowdown?
- The Bureau of Economic Analysis (BEA) surprised even the most optimistic of economists when it reported the U.S. economy grew at an annual rate of four percent in the second.
- As the U.S. economy improved, the yields on the 10-year U.S. Treasury started to rise as interest rates rose with general optimism towards the economy.
- BEA say the U.S. economy grew by 0.1% in the first quarter, then after a couple of revisions, they said the economy actually contracted 2.9% in the first quarter.
Why U.S. Interest Rates Have Defied Expectations And What Lies Ahead
- Treasury yield levels and their path in future will have a significant impact on the economy and markets.
- An overlooked reason why US treasury yields have gone down when everyone expected them to go up.
- What that means for where yields may be headed in future.
The DIA-IEF Double Switch: One Of The Safest And Laziest Strategies
- The author shows a simple strategy using 2 of the most liquid ETFs. It needs a minute every month.
- It is supported by research and recent history: a 10% annualized return with a bond-like risk.
- The return can be widely improved by leveraging or extending the concept to more sophisticated models.
- Contrary to conventional wisdom, there is not a positive, but a negative, correlation between the US's public debt and interest rates.
- If the US deficit is cut, this would be bearish for Treasuries, unless the adverse impact on GDP was so severe that it raised the debt/GDP ratio.
- From a long-term historical perspective, it would appear that we are at extreme levels in terms of debt and Treasury yields.
- There are no good reasons to expect Treasury yields are set to fall.
- The growing evidence suggests that the bond market is running out of steam and the risks are rapidly outgrowing the avowed safety of Treasuries.
- It is prudent to stay away from Treasuries for the next three years.
- Investors will have to start becoming more aggressive about how they protect their money.
- Slowly accumulating rate-sensitive assets like financial stocks might allow one to begin preparing for a market that could turn surprisingly quickly within the next year.
There are no Transcripts on IEF.
Fri, Sep. 26, 10:07 AM
- It's not just shares of Janus (JNS +36.2%) and Allianz (OTCQX:AZSEY -5.7%) that are moving in response to Bill Gross' job change - traders say the news sparked knee-jerk selling in Treasury bonds.
- "Concerns over his abrupt departure are weighing on Treasury prices," says Tom di Galoma, head of fixed income rates at ED&F Man Capital Markets; the fear is that Pimco's clients will redeem, forcing Pimco to liquidate Treasury bonds.
- “He’s been a bond bull for most of his career, and during that time bonds have been in a bull market - maybe the next Pimco bond managers won’t be as bullish,” says Aaron Kohli of BNP Paribas.
- Gross manages the $221B Pimco Total Return Fund, the world's largest bond fund by assets, which held 41% of its investments in U.S. government-related holdings, a proxy for Treasury bonds, at the end of August.
- Treasurys have climbed off lows but remain in the red: TBT, TLT, TMV, SHY, IEF, TBF, EDV, PST, TMF, TTT
Wed, Sep. 17, 2:16 PM
- There's little news from the FOMC policy statement (other than two dissents instead of one), but there's a bit more action in the economic projections and the "dots."
- The projection for 2015 GDP growth is cut somewhat, but so is the forecast unemployment rate, now at a range of 5.4-5.6% from 5.4-5.7%. The high end of the core PCE inflation forecast is cut, now 1.6-1.9% from 1.6-2.0%.
- 11 out of 17 FOMC members now see the Fed Funds rate at above 1% by the end of 2015. Four of the group see Fed Funds at about 4% by the end of 2016.
- The bond market is selling off on what could be argued to be a more hawkish lean to the policy statement and projections. The 10-year Treasury yield - at about 2.56% ahead of the release - is up to 2.60% at the moment. TLT +0.35%
- More sensitive to short rate, the 3-year yield jumps about 7 basis points to 1.1%.
- Janet Yellen's press conference begins at 2:30 ET.
- ETFs: TBT, TLT, TMV, TBF, EDV, TMF, TTT, ZROZ, SBND, TLH, DLBS, VGLT, UBT, TLO, TENZ, LBND, TYBS, DLBL, SHY, IEF, PST, IEI, TYO, DTYS, BIL, UST, VGIT, SHV, VGSH, TBX, SCHO, GSY, SCHR, DTYL, TYD, ITE, DTUS, SST, DTUL, TUZ, DFVL, TBZ, FIVZ, DFVS, TYNS
Wed, Sep. 17, 8:47 AM
- Awaiting FOMC members when they arrive for day two of their policy meeting will be today's news of a 0.2% decline in the CPI in August (vs. a forecast 0.1% gain), along with the core rate flatlining (vs. a forecast 0.2% gain). It's first time the core rate hasn't risen on a month-to-month basis in four years. So much for being behind the curve.
- On a year-over-year basis, the CPI rose 1.7% vs. 1.9% estimated.
- The 10-year Treasury yield slips to 2.56% from 2.59% ahead of the report.
- TLT +0.5%, TBT -1% premarket
- ETFs: TBT, TLT, TMV, IEF, TBF, EDV, PST, TMF, TTT, ZROZ, SBND, TLH, IEI, TYO, DTYS, DLBS, VGLT, UST, UBT, VGIT, TLO, TBX, GSY, SCHR, TENZ, DTYL, LBND, ITE, TYD, TYBS, DLBL, TBZ, DFVL, FIVZ, DFVS, TYNS
Fri, Sep. 12, 9:48 AM
- It's taken less than two weeks in September to erase all of the summer's big gains in long-term Treasury prices. Today's five basis point jump in the 10-year yield to 2.60% brings it above the level it was at just after the Memorial Day weekend.
- If Europe led yields south during the summer, it's leading them north now, with the German 10-year Bund yield up another five basis points to 1.05% after sinking to below 0.9% two weeks ago. Italian, Spanish, and British yields are sharply higher as well (though all three countries sport 10-year rates lower than the U.S.).
- TLT -0.7%, TBT +1.4%
- ETFs: TBT, TLT, TMV, IEF, TBF, EDV, PST, TMF, TTT, ZROZ, SBND, TLH, IEI, TYO, DLBS, DTYS, VGLT, UST, UBT, VGIT, TLO, TBX, GSY, SCHR, TENZ, DTYL, LBND, ITE, TYD, TYBS, DLBL, TBZ, DFVL, FIVZ, DFVS, TYNS
Wed, Sep. 10, 8:58 AM
- "It's almost comical" that experts continue to forecast rising rates, says Jeff Gundlach. The downgrade of GDP forecasts has now become an annual event, yet "hope springs eternal" that 3% growth is just around the corner.
- Look no further than housing, says Gundlach, for what's holding the economy back. There's a secular trend at play as demographics continue to force a shift away from home ownership, and the cyclical action of rising home prices will just accelerate this.
- Earlier, the MBA reported mortgage application volume fell 7.2% last week, bringing the MBA index to its lowest level since December 2000. Refinance volume fell 11% to its lowest level since Nov. 2008, and purchase volume fell 3% on the week, and 12% from a year ago.
- The purchase print is especially troubling, says Diana Olick, as all-cash institutional buyers are moving out of the market, leaving mortgage-dependent buyers to pick up the slack.
- The 10-year Treasury yield is higher by two basis points to 2.53%.
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, EDV, PST, TMF, TTT, ZROZ, SBND, TLH, IEI, DLBS, TYO, DTYS, VGLT, BIL, UST, UBT, VGIT, SHV, PLW, GOVT, VGSH, TLO, TBX, SCHO, GSY, SCHR, TENZ, DTYL, TYD, ITE, LBND, DTUS, SST, TYBS, TUZ, DLBL, DTUL, TBZ, DFVL, FIVZ, DFVS, TYNS, TAPR
Fri, Sep. 5, 4:47 AM
- U.S. data released today is expected to show steady job growth, rising in August to 225K from 209K in July, and a slight drop in the unemployment rate to 6.1% from 6.2%.
- Adding to the ECB's move for a new securities purchase program and cutting its key rates, highlighting an improved labor market will spur debate as to whether the Fed will step back from its commitment to keep rates low for a "considerable period" or hang on to its current policy due to a weak global economy.
- ETFs: TBT, TLT, UUP, TMV, UDN, SHY, IEF, TBF, EDV, PST, TMF, TTT, ZROZ, SBND, TLH, IEI, TYO, DLBS, DTYS, FORX, VGLT, UDNT, BIL, UUPT, UST, UBT, STPP, SHV, VGIT, PLW, VGSH, TLO, GOVT, FLAT, TBX, SCHO, USDU, GSY, SCHR, TENZ, DTYL, TYD, ITE, LBND, DTUS, SST, TYBS, DTUL, DLBL, TUZ, TBZ, FIVZ, DFVL, DFVS, TYNS, USFR, TFLO, TAPR
Tue, Sep. 2, 3:03 PM
- First, says the team, the economy has improved and economic data has been beating expectations. The bank's Economic Data Surprise Index has risen substantially from its lows and now stands at its highest level since May.
- Second is valuation, with Treasury yields at their lowest point of the year.
- Third is the tendency for Treasury yields to rise during the week of the nonfarm payrolls report.
- Fourth - yields also tend to rise in the weeks leading up to FOMC meetings which also include economic projections and a press conference (next meeting is Sept. 16-17).
- Unfortunately, much of the "tactical" move may have already been missed as the 10-year yield has shot up eight basis points today to 2.42%
- Previously: Surprising jump brings ISM to highest since March 2011
- ETFs: TBT, TLT, TMV, IEF, TBF, EDV, PST, TMF, TTT, ZROZ, SBND, TLH, IEI, TYO, DTYS, DLBS, VGLT, UST, UBT, PLW, VGIT, TLO, GOVT, TBX, GSY, TENZ, SCHR, DTYL, TYD, ITE, LBND, TYBS, DLBL, TBZ, FIVZ, DFVL, DFVS, TYNS, TAPR
Tue, Sep. 2, 10:12 AM
- New Orders of 66.7 is a 3.3 point rise from July's level, and the highest read for that subindex since April 2004. Production of 64.5 also rises 3.3 points in August.
- Employment 58.1 vs. 58.2; Supplier Deliveries 53.9 vs. 54.1; Inventories 52 vs. 48.5; Prices 58 vs. 59.5; Backlogs 52.5 vs. 49.5.
- "Business is strong. Labor is becoming a difficult issue," says a respondent in the Furniture & Related Products industry. From a respondent in Primary Metals: "Strongest month in years. Business is solid...Awesome!"
- Previously: ISM Manufacturing Index rises to 59 in August
- Full report
- Already lower on the session, Treasury prices decline a bit further, with the 10-year yield now higher by six basis points to 2.40%. TLT -1.4%, TBT +2.6%.
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, EDV, PST, TMF, TTT, ZROZ, SBND, TLH, IEI, DTYS, TYO, DLBS, VGLT, BIL, UST, UBT, PLW, SHV, VGIT, VGSH, TLO, GOVT, TBX, SCHO, GSY, TENZ, SCHR, DTYL, TYD, ITE, LBND, DTUS, SST, TYBS, TUZ, DLBL, DTUL, TBZ, DFVL, FIVZ, DFVS, TYNS, TAPR
Thu, Aug. 21, 10:14 AM
- As high as 2.45% earlier this morning, the 10-year Treasury yield is now lower by two basis points on the session to 2.41% despite a more than 4-year high in the Flash Manufacturing PMI, a 3 1/2-year high in the Philly Fed Business Outlook, and Existing Home Sales rising past expectations in July.
- TLT +0.2%, TBT -0.4%
- A check of Eurodollar futures finds the first Fed rate hike being priced in for next Spring.
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, EDV, PST, TMF, TTT, ZROZ, SBND, TLH, IEI, DTYS, TYO, DLBS, VGLT, BIL, UST, UBT, SHV, VGIT, TLO, VGSH, TBX, SCHO, GSY, SCHR, TENZ, DTYL, LBND, TYD, ITE, DTUS, TYBS, SST, DTUL, DLBL, TUZ, TBZ, DFVL, FIVZ, DFVS, TYNS
Wed, Aug. 20, 2:15 PM
- The 10-year Treasury yield adds another basis point following the FOMC minutes, now ahead 2.5% bps on the session to 2.43%. Looking at a rate more sensitive to Fed policy, the 5-year note yield jumps 4.5 bps to 1.625%.
- The minutes show many committee members believing the labor market is improving faster than anticipated across a whole range of indicators, and the time is getting near for when it can no longer be described as underutilized.
- TLT -0.4%, TBT +0.8%
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, EDV, PST, TMF, TTT, ZROZ, SBND, TLH, IEI, DTYS, DLBS, TYO, VGLT, BIL, UST, STPP, UBT, PLW, SHV, VGIT, TLO, GOVT, FLAT, VGSH, TBX, SCHO, GSY, TENZ, SCHR, DTYL, LBND, ITE, TYD, DTUS, TYBS, SST, TUZ, DTUL, DLBL, TBZ, FIVZ, DFVL, DFVS, TYNS, TAPR
Fri, Aug. 8, 7:25 AM
- Macro concerns trump Fed hawkishness as the 10-year Treasury yield falls another five basis points to 2.37%, its lowest since June of 2013. The yield on the long bond is down four basis points to 3.20%.
- In shorter maturities, the 5-year note is down four bps to 1.56%.
- A check of Eurodolloar futures finds them higher, but still predicting the first rate hike by next June.
- TLT +0.5% premarket
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, EDV, PST, TMF, TTT, ZROZ, SBND, TLH, IEI, DTYS, TYO, DLBS, VGLT, BIL, UBT, UST, SHV, VGIT, TLO, VGSH, TBX, SCHO, GSY, SCHR, TENZ, DTYL, LBND, ITE, TYD, DTUS, SST, TYBS, DLBL, DTUL, TUZ, TBZ, DFVL, FIVZ, DFVS, TYNS
Fri, Aug. 1, 8:42 AM
- The uptick in unemployment in July came as the labor force participation rate edged up to 62.9% from 62.8%. It was 63.4% a year ago. The employment-to-population ratio of 59% was flat from June, and up from 58.7% a year ago.
- The average workweek remained flat for the fifth straight month at 34.5 hours. Average hourly earnings edged higher by a penny to $24.25 - they're up 2% from a year ago.
- May's 224K jobs gain was revised higher by 5K jobs and June's 288K was bumped higher by 10K for total upward revisions of 15K.
- The broader U-6 unemployment rate rose to 12.2% from 12.1% - a year ago it stood at 13.9%.
- The 10-year Treasury yield slips to 2.53% from 2.59% ahead of the report.
- Previously: July job gain below estimates
- Full report
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TMF, TTT, ZROZ, SBND, TLH, IEI, DTYS, TYO, DLBS, VGLT, BIL, UBT, UST, VGIT, SHV, TLO, VGSH, TBX, SCHO, GSY, SCHR, TENZ, DTYL, ITE, TYD, LBND, SST, TYBS, DTUS, DTUL, TUZ, TBZ, DLBL, DFVL, FIVZ, DFVS, TYNS
Thu, Jul. 31, 10:02 AM
- The 10 point decline to 52.6 in July was led by a "collapse" in the production and ordering components, say the report authors, leaving the production gauge barely in expansion territory. New orders - the most highly weighted component of the headline index - saw its largest decline since November. Backlogs fell into contraction territory.
- The surprise fall calls into question the sustainability of the recovery, says MNI Indicators' Philip Uglow.
- Full report
- The response of the Treasury market suggests it believes the slow report is a one-hit wonder. The 10-year yield remains higher by three basis points at 2.59%. TLT -0.6%, TBT +1.2%
- ETFs: TBT, TLT, TMV, IEF, TBF, PST, EDV, TMF, TTT, ZROZ, SBND, TLH, IEI, DTYS, TYO, DLBS, VGLT, UBT, UST, VGIT, TLO, TBX, GSY, SCHR, TENZ, DTYL, ITE, LBND, TYD, TYBS, TBZ, DLBL, FIVZ, DFVL, DFVS, TYNS
Wed, Jul. 30, 8:45 AM
- The economy grew at a 4% pace in Q2 says the government in its first estimate of that quarter's activity, well past expectations for 3% growth. Still revising Q1's numbers, that quarter's decline of 2.9% was adjusted to a fall of just 2.1%.
- On the inflation front, the PCE index - the Fed's preferred price gauge - rose a speedy 2.3% in Q2 vs. 1.4% in Q1. It's the fastest pace since 2011 Q2. Core PCE rose 2%, up from 1.2% in Q1.
- The 10-year Treasury yield shoots up five basis points to 2.51%. TLT -0.5%, TBT +1% premarket
- ETFs: TBT, TLT, TMV, IEF, TBF, PST, EDV, TMF, TTT, ZROZ, SBND, TLH, IEI, DTYS, TYO, DLBS, VGLT, UBT, UST, VGIT, TLO, TBX, GSY, TENZ, SCHR, DTYL, ITE, LBND, TYD, TYBS, TBZ, DLBL, FIVZ, DFVL, DFVS, TYNS
Wed, Jul. 30, 4:31 AM
- The Fed is likely to go forward with its plan to wind down its bond-buying stimulus today, cutting its monthly asset purchases to $25B from $35B - on target for shutting the program this fall.
- During the Fed's announcement, investors will be looking for clues to how much closer the central bank is to raising interest rates, which can be triggered by the recent unemployment drop or firm inflation.
- A report is also expected to show the U.S. economy growing at a healthy 3% annual clip in Q2.
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TMF, TTT, ZROZ, SBND, TLH, IEI, DTYS, TYO, DLBS, VGLT, BIL, STPP, UST, UBT, PLW, VGIT, SHV, TLO, VGSH, TBX, GOVT, FLAT, SCHO, GSY, TENZ, SCHR, DTYL, ITE, LBND, TYD, SST, TYBS, TUZ, DTUL, DTUS, DLBL, TBZ, FIVZ, DFVL, DFVS, USFR, TYNS, TFLO, TAPR
Mon, Jul. 28, 12:48 PM
- The Direxion Daily Mid Cap Bull 2X Shares (Pending:MDLL) and Direxion Daily Small Cap Bull (Pending:SMLL) will offer investors leveraged exposure to their respective market caps.
- Both funds will have an expense ratio of 0.66%, making them relatively inexpensive compared to many leveraged equity ETFs.
- The Direxion 7-10 Year Treasury Bull 2X Shares (Pending:SYTL) will offer investors leveraged exposure to intermediate-term U.S. Treasury bonds, while charging an expense ratio of just 0.65%.
- Other Russell 2000 ETFs: IWM, TZA, TNA, UWM, URTY, TWM, RWM, SRTY, VTWO, EWRS, TWOK
- Other S&P 400 ETFs: MDY, MVV, IJH, RWK, UMDD, IVOO, MZZ, SMDD, MYY
- Other Intermediate Treasury ETFs: IEF, PST, IEI, DTYS, TYO, UST, VGIT, TBX, GSY, SCHR, DTYL, ITE, TYD, TBZ, DFVL, FIVZ, DFVS, TYNS
IEF vs. ETF Alternatives
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