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Thursday, June 5, 2014

Investor Performance Chasing...Again

It is probably one of the most constant aspects of financial markets...investors chase returns and more often than not sell close to the lows and buy close to the highs. With a major rally in longer term treasury bonds pushing yields to extreme lows(prices to highs with  ten year treasuries below 2.5% which way have etf investors moved..... reports

The single most popular fund last month was the iShares 7-10 Year Treasury Bond ETF (IEF | A-51), which gathered more than $5 billion. It was a fitting data point considering yields on benchmark 10-year Treasury notes dropped to 2.46 percent from 2.59 percent at the end of the April. IEF’s price, which moves in the opposite direction of its yield, rose more than 1.5 percent in May.

IEF has a current yield of 2.11% so its hard to see it as a good long term investment. But it is volatile with a duration of 7.5 years a 1% move interest rates creates a 7% change in price. Another way to look at the risk return is that a .3% increase in interest rates creates a price decline of 2.25% which is more than the one year yield.

Below is a 3 month price graph of IEF

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