Last week, President Donald Trump approved doubling of metal tariffs on Turkey that led to the fall of lira by 20% on Aug 10. The United States plans to double import tariffs on Turkish steel to 50% and raise the rate on aluminum to 20%, Trump said on Twitter on Friday.
The depreciation started after the Turkish delegation returned from Washington with no progress on the detention of Andrew Brunson, an American pastor detained in Turkey in 2016.
The U.S. government debt prices spiked on Aug 10 as traders were in search of a safe haven. In response to U.S. tariffs earlier this year, Turkey directed its exports toward other European countries like Italy and Spain. The new U.S. tariffs will aggravate the fears, leading to more exports in the above-mentioned regions leading to the ever-mounting pressure on European producers.
What is Happening in Turkey?
The lira has already lost 20% of its value since the announcement and has fallen more than 40% this year.
On Friday, President Erdogan asked his fellow citizens to exchange foreign currency and gold for lira, stating it as an economic war. “This is a domestic and national struggle,” he said, as the lira continued to fall.
Impact on U.S. Government Bonds
U.S. government bonds rallied
on Aug 10, leading to the sharpest yield decline since late May as turmoil in Europe alongside the financial distress in Turkey steered the anxious investors in the direction of the proven safety of sovereign paper.
U.S. Treasury Bond ETFs again started to trade above their short and long-term trends at the 50- and 200-day simple moving averages. The 10-year U.S. Treasury yield dropped 6 basis points to 2.87% on Aug 10, from the day before.
The Turkish 10-year yield hit a high of 22.82%, its highest-level back through 2010. There is an inverse relationship between bond yield and price.
Following the upsurge in treasury demand, treasury ETFs are a preferred place of investor trust in the near future.
Treasury ETFs Surge Amid Turkey Crisis: iShares Short Treasury Bond ETF (SHV)
The iShares Short Treasury Bond ETF
) tracks the Barclays Capital U.S. Short Treasury Bond Index. This ETF provides exposure to U.S. Treasury bonds that mature in less than one year.
The AUM as of Aug 10 was $15.24 billion. The fund charges 15 bps in fees. The closing price on Aug 10 was $110.35.
Treasury ETFs Surge Amid Turkey Crisis: iShares 1-3 Year Treasury Bond ETF (SHY)
The iShares 1-3 Year Treasury Bond ETF
) tracks Barclays Capital U.S. 1-3 Year Treasury Bond Index. The targeted short-term U.S. treasury bonds have remaining maturities between one and three years.
The AUM as of Aug 10 stood at $13.38 billion.The expense ratio of the fund is 0.15%.The fund traded at $83.25 at the close of day on Aug 10.
Treasury ETFs Surge Amid Turkey Crisis: iShares 7-10 Year Treasury Bond ETF (IEF)
The iShares 7-10 Year Treasury Bond ETF
) tracks Barclays Capital U.S.7-10 Year Treasury Bond Index. The targeted range is the intermediate term U.S. treasury bonds.
The AUM as of Aug 10 was $9.30 billion while the expense ratio of the fund is 0.15%.The fund closed trading at $102.37 on Aug 10.
Treasury ETFs Surge Amid Turkey Crisis: iShares 20+ Year Treasury Bond ETF (TLT)
The iShares 20+ Year Treasury Bond ETF
) tracks Barclays Capital U.S. 20+ Year Treasury Bond Index. It provides exposure to long-term U.S. Treasury Bonds. AUM was $7.56 billion as of Aug 10.
This product also charges 15 bps in fees. The closing trading price was $120.66 on Aug 10.
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