The strength in the Treasury bond markets has surprised many analysts. At the end of last year, many were expecting that interest rates will go up in 2014 as the economic growth picks up and Fed moves towards raising interest rates.
But interest rates have moved significantly lower this year, benefiting Treasury bond ETFs. One of the many reasons for this unexpected strength in the Treasury bond market is the uneven global growth. Due to global slowdown, the global oil demand has been downgraded by several times in the past few months, leading to the steep decline in oil prices.
With global growth concerns and turmoil in Russia, investors have been seeking refuge in safe haven assets such as Treasury bonds. And while the growth has been picking up, inflation has remained muted. Weak inflationary expectations in the longer-term are good for bonds.
Further, interest rates in the U.S. are still very attractive compared to those in other parts of the developed world. A strong U.S. dollar also makes U.S. assets attractive to overseas investors. As a result, foreign investors have been heavy buyers of Treasury securities this year.
Now with the Fed reiterating that they will not be in a hurry to raise rates, Treasury bond ETFs may remain attractive in the next few months, if the global growth also remains weak.