Trade and Read Treasury ETFs

In the chart below, have a look at the percentage change in $TLT (blue line), $JNK (orange line), and $SPY (red line) over the last three months. Specifically, look at how they diverge at the start of May. If you are a new investor, and are lost or confused in today’s market, take a moment to learn about treasury ETFs, as they will give you a glimpse into the mood of the market.

 

 

 

 

 

 

 

 

When market conditions are poor (economic or currency crisis) investors and traders often seek US treasuries over stocks for fear of a disruption in prices and cash flows. In the picture above, $TLT represents a 20+ year treasury ETF and $SPY represents an S&P 500 ETF. The divergence between these two asset classes may tell us that investors are looking for safety in treasuries. Consider the weak jobs report, and what should be a wild June that includes an IMF review of Spain, an ECB meeting, and Greek elections.

Greg Harmon, the man at the helm of Dragon Fly Capital, wrote about treasury ETFs right around this time last year. He introduced his readers to three treasury ETFs with three different time horizons. They are:

  1. 1-3 year Treasury: $SHY
  2. 7-10 year Treasury: $IEF
  3. 20+ year Treasury: $TLT
US treasuries can also be shorted with ETFs. Three short Treasury ETFs are listed below:
  1. Short 3-7 year Treasury: $TBZ
  2. Short 7-10 year Treasury: $TBX
  3. Short 20+ year Treasury: $TBF
If you do not trade or invest in treasury ETFs, use them at least to gain insight into the mood of the market. For example, Harmon likes to compare the 20+ year treasury ETF $TLT to the High Yield ETF $JNK. Together, these two ETFs measure the risk appetite in the market. Once again, from the picture above we see that the treasury 20+ year treasury ETF $TLT is rising while the stock and high yield ETFs $SPY and $JNK are falling. This means that the market is fleeing to safer investments backed by the United States government, and away from equity investments. It is a shift in risk appetite.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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