Beginning in May 10-year treasury yields began spiking, and ETFs in turn began plummeting. The reasoning behind this is simple: as the government continued their bond-buying stimulus program, rates were kept lower. Bond prices and yields have an inverse relationship, so as prices went lower yields in turn increased, making existing bonds worth less.
On Aug. 15 yields on 10-year treasury notes topped 2.8 percent, a two-year high. Rates would continue climbing, reaching as high as 2.9 percent for 10-year notes on Aug. 22, and 3.90 for 30-year the following day. While tapering fears still loomed, belief that the US economy was stabilizing was bolstered the day prior, as existing home sales jumped 6.5 percent. Yield rates began dropping on Aug. 23, and Treasury ETFs in kind have started bouncing back.
Aug 23 ended up being what has been (so far) the bottom for Treasury ETFs. Though it is unclear if the trend will continue, it now appears a rebound is taking place, stopping an over three month slide for Treasury ETFs. While unexpcetdely poor housing data came out on Aug. 28, suggesting the economic turnaround might not be as robust as previously expected, yields have continued to drop.
The price drop for the ETFs has been precipitous. Following a year high of $124.01 a share on May 2 iShares Barclays 20+ Year Treasury Bond ($TLT) sunk over 18 percent to bottom out at $102.13 a share. It has started to rebound, hitting $105.27.
iShares Barclays 7-10 Year Treasury ($IEF) has likewise experienced a major summertime drop. After hitting a high of $109.50 on May 2, the ETF dropped below $100 before climbing back to hit $100.48 on Aug. 28.
The worsening situation in Syria is also expected to affect Treasury yields going forward, as uncertainty over whether or not the US will enter into another full-blown military action in the Middle East drops yields further.
(image of US Treasury Building courtesy of Wikimedia Commons)
