Secondary bond market
Treasury yields mostly fell across the yield curve for the week ended April 29, 2016, due to weak domestic economic data while April’s FOMC (Federal Open Market Committee) meeting failed to provide strong clues about the next interest rate hike. The demand for Treasury securities rose after equity markets were down due to disappointing quarterly results from tech giants like Apple (AAPL), Microsoft (MSFT), and Twitter (TWTR). The SPDR S&P 500 ETF (SPY) was down by 1.3% week-over-week.
The fall in the yields was in the range of one to nine basis points. For the week ended April 29, the two-year Treasury yield fell by seven basis points to end at 0.77% while the ten-year Treasury yield was down by six basis points to end at 1.8%.
Soft economic growth data
The Bureau of Economic Analysis released advanced gross domestic product (or GDP) estimates on April 28. The US GDP grew 0.5% in the first quarter, its slowest pace in two years. It was also lower than the consensus estimates of 0.7%. Treasury yields fell after the release of the weak GDP data, as it trimmed down the probability of a rate hike by mid-2016.
The personal consumption expenditures (or PCE) price index, excluding the volatile food and energy components, rose 1.6% year-over-year (or YoY) in March after rising 1.7% in February. It edged up 0.1% in March after increasing 0.2% in February. The Fed has repeatedly said it wants to see inflation rising towards its target to go ahead with further interest rate hikes.
Investors can get exposure to Treasury securities through mutual funds and ETFs. With the fall in the Treasury yields, mutual funds and ETFs rose.
For the week ended April 29, the iShares 20+ Year Treasury Bond Fund (TLT) rose 08% while the iShares Core US Aggregate Bond (AGG) was up by 0.3%. The Dreyfus US Treasury Long Term Fund (DRGBX) and the MassMutual Select Strategic Bond Fund – Class A (MSBAX) were up by 0.7% and 0.5%, respectively.
In the next article, we’ll look at the Treasury market’s reaction to the Federal Open Market Committee (or FOMC) meeting.