Although the economy remains on very shaky ground, investors have had just about enough of the U.S. Treasury market. Yields on the two-year note are below 0.5%, and now that the economy appears unlikely to collapse in the immediate future, investors have begun to look at both riskier assets and other safe havens as alternative places to put money while the economic situation is figured out. This has led to a small retreat in the long-term side of the Treasury market as investors contemplate the wisdom of keeping cash in such an interest rate sensitive area of the market given the uncertainty of the Fed's policy moves going forward.
Hopefully, some of this confusion will be alleviated later today when the Federal Reserve meets to give its decision on rates and possibly let investors in on what the bank is planning to do in order to boost the economy in the near-term. Some investors are looking for the Bank to expand its Treasury buying program in order to keep rates low and make borrowing cheaper for consumers and businesses. If the Bank decides to increase its purchases, it could help to boost Treasury ETFs and keep them elevated for the foreseeable future [see Long Term Bond ETFs: One Heck Of A Rally].
However, some believe that this policy move seems unlikely given that the economy has not deteriorated significantly from the Bank's last meeting in August. "I think there is the real risk the Treasury market will be disappointed by the lack of further action from the Fed and we could push to higher rates," said Christian Cooper, senior rates trader in New York at Jefferies & Co. "Certainly the possibility of a growth outlook downgrade would be supportive of Treasurys, but I think the absence of additional accommodation will be the key driver of price action tomorrow and for the remainder of the week."
Due to this meeting, we look for the iShares Barclays 20 Year Treasury Bond Fund
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