Are Treasury Bonds a Good Investment? In the Short-Term, Yes

It was a rough day for bulls as bank stocks sunk on poor quarterly earnings. JPMorgan (NYSE: JPM), Wells Fargo (NYSE: WFC), and Bank of America (NYSE: BAC) have reported thus far.

Shareholders were not impressed with what they heard.

Economic data from March disappointed, too. Retail sales plunged 8.7% last month according to data from the Commerce Department released this morning. It’s the biggest monthly decline ever measured by the government.

“If this is a precursor to what we can expect throughout the U.S. […] there’s no word for it,” Quincy Krosby, chief market strategist at Prudential Financial, said.

“This reflects the complete shutdown of the economy.”

Odds are, it could get even worse come April. But that doesn’t mean the market is set to crash again any time soon.

Investors knew that the economy would get crunched by COVID-19. The more important issue is the post-coronavirus recovery, and when (not if) it will occur.

“The question is how quickly can the economy come back,” Krosby said, acknowledging that stocks could simply be selling-off after a major rally from their March lows.

Other analysts, however, aren’t so convinced that equities will rise further.

“This points to a very severe recession because this is just the beginning of a series,” advised Peter Cardillo, chief market economist at Spartan Capital Securities.

“The consumer’s not spending. What does that mean for the market? I think it means we may have a short-term top here.”

Despite today’s hiccup, though, stocks remain in a position to continue their rally. If COVID-19 cases level-off further and the government opens the economy back up sooner than expected, don’t be surprised to see another surge.

One that could potentially dwarf the gains of the last few weeks.

However, if no new developments come down the pipe, the market could just as easily “chop sideways” for a few sessions. That’s bad news for directional traders trying to capitalize on the market’s undulating movements.

Thankfully, there’s an ETF that could still soar while everything else is “stuck.”

The iShares Trust U.S. Treasury Bond Fund ETF (NYSE: GOVT) tracks the investment results of an index composed entirely of U.S. Treasury bonds. Investors use this ETF to gain exposure to Treasuries with maturities ranging from 1-30 years and to pursue income.

But for traders, it’s about to present an entirely different kind of opportunity.

GOVT closed above the 10-day moving average today and its minor bearish trend (represented with the yellow trendline). It also set its second consecutive higher low, and now rests on the edge of a serious breakout past key resistance.

Should GOVT trade above today’s high by a significant amount, it might make sense to go long on the ETF with a trade trigger of $28.21.

From there, GOVT’s likely to burst upwards before quickly retreating. It might not be setting up for a long-term move, but for short-term traders, rapid gains could be waiting.

All while stocks frustratingly go nowhere amid increased uncertainty.



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