US Treasury bond ETFs climb as Middle East conflict spurs safe-haven demand
EXCHANGE-TRADED funds (ETFs) that track US Treasury bonds rose on Monday (Oct 9), as worries over possible escalation of the conflict between Israel and the Palestinian group Hamas boosted demand for safe haven assets.
The iShares 20+ Year Treasury Bond ETF rose 0.9 per cent, after falling over 4 per cent last week, while the iShares 7-10 Year Treasury Bond ETF climbed 0.8 per cent.
The US bond market is closed with the Columbus Day holiday, but bond-related ETFs are trading. The 10-year Treasury futures rose a sizable 13 ticks.
“In times of geopolitical tension, it is usual to see a flight to safety so we may be seeing some signs that demand for Treasury bonds is picking up,” said Laith Khalaf, head of investment analysis at AJ Bell.
“When the initial shock of the conflict in the Middle East wears off, markets may start to focus once again on the bump to the oil price, and what that means for bond prices.”
The conflict in the Middle East comes at a time when bond yields around the world are at multi-year highs on fears that central banks will keep interest rates elevated for longer.
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Performance-wise, the popular iShares 20+ fund has nearly halved from its 2020 peak amid the bond rout but posted its ninth straight quarter of inflows last month.
“The rally in bonds (also means falling rates) could break the ‘short the bond market’ fervour that has gripped the rates market for the past month, post-Sep FOMC,” said Tom Lee, head of research at Fundstrat, in a note.
The iShares 1-3 Year Treasury Bond ETF gained 0.2 per cent, while ultra-short bond ETFs like iShares 0-3 Month Treasury Bond ETF and SPDR Bloomberg 1-3 Month T-bill ETF, edged higher.
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In Germany, the 10-year Bund yield dropped as much as six basis points to 2.83 per cent, retreating from last week’s 12-year high.
Other safe-haven assets, such as SPDR Gold Trust, the world’s largest gold-backed ETF, climbed 1.0 per cent, while currencies like the US dollar and the Japanese yen edged higher. REUTERS
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