TLT, MLN Jump As Yield Curve Flattens

August 18, 2011

Long-term bond ETFs jumped sharply amid a broad-based rush to safety.

Long-term bond ETFs in both the Treasury and muni markets jumped sharply today, as the yield curve flattened amid a broad-based rush to safety.

The $2.9 billion iShares Barclays 20-Year Treasury ETF (NYSEArca: TLT) was trading up more than 2 percent at 3 p.m. EDT, on more than twice its average daily trading volume. It is now up more than 12 percent in August. Other long-term Treasury ETFs delivered similar returns.

Rising prices were concentrated at the long end of the Treasury curve. The iShares Barclays 7-10 Year Treasury ETF (NYSEArca: IEF), for instance, was up just 0.56 percent, while the iShares Barclays Short Treasury Bond ETF (NYSEArca: SHV) was trading flat for the day.

A similar spread was seen in the municipals market, where the Market Vectors Long Municipal Index ETF (NYSEArca: MLN) was up 1.06 percent, while its short-term counterpart (NYSEArca: SMB) was up just 0.85 percent

The S&P 500, for reference, was trading down 5.03 percent at 3 p.m. EDT.

Bond prices rise when yields fall. Today’s rush to safety has pushed yields down sharply, with the 10-year Treasury note falling below 2 percent for the first time ever.

TLT & MLN drop

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