ETF Plays on Rates (TLT, ITB, IEF); 10-Year Rates At 10-Month Highs

ETF Tickers: TLT, ITB, IEF

Some stock traders claim to be spooked by the thought of higher rates.  The two consecutive negative days were partially on this, but today was the mark to watch.  The 10-Year US Treasury Note just crossed back over 5.00% for the first time since August 2006.  The yield is currently at $5.04% to 5.05%, up 0.08% from last night.

An ETF that tracks the intermediate to longer-term maturities is the iShares Lehman 20+ Year Treasury Bond (TLT), and this is down 0.8% at $84.67.  Its stated ETF price moves inversely with the direction or change of interest rates, so as rates rise its price falls and vice versa. The slightly shorter time period ETF with a lower duration is the iShares Lehman 7-10 Year Treasury (IEF), and it is trading down 0.5% at$80.61 this morning.

If anyone is still hoping for a rate cut from Bernanke & Co., the markets are beating an entirely different drum.  The 10-year note is also the key for mortgage rates, and outside of the negative news still coming out of housing stocks would help explain the 5% drop in the homebuilder stocks.  The ETF that tracks homebuilders is the iShares Dow Jones US Home Construction (ITB), and its shares are down again today by more than 1.5% at$35.32 and are now down about 5% from the close on Monday.  In fact, average mortgage rates have climbed 0.14% this week.

Rates are dragging on stocks this morning, but not as much as earlier this week.  After 45 minutes of trading, here’s where we stand today:
DJIA            13,439.42; -26.25 (-0.2%)
S&P500      1,512.52; -4.86 (-0.3%)
NASDAQ    2,580.09; -7.09 (-0.27%)

Jon C. Ogg
June 7, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.