Displaying items by tag: fed

U.S. Treasury yields rose on Monday with the benchmark 10-year yield hitting a five-week peak of 3.039%, while the 30-year yield climbed to a seven-week high of 3.268%. Yields rose as investors await a Federal Reserve gathering occurring later this week in Jackson Hole, Wyoming. The Fed is widely expected to reinforce its commitment to tackling inflation. Fed Chair Jerome Powell is scheduled to speak Friday morning at the Jackson Hole symposium. Last week's Fed minutes appeared to suggest that the Fed is on course to continue to increase interest rates with the central bank seeing "little evidence" that inflation was easing. The auction for shorter-dated coupons this week also added to the sell-off in Treasuries, pushing their yields higher. Traders typically sell Treasuries before an auction and then buy them back at a lower price. 

Finsum: Treasuries hit multi-week highs on Monday as investors await Fed Chair Jerome Powell’s speech on Friday morning at the Jackson Hole symposium.

Fixed income investors might feel lost in the current environment, but with yields starting to generate real income and prices ultra-low it might be the perfect buying opportunity. A new series of bond ETFs centered around treasuries was launched to capitalize on this unique time in the bond market. Slope Capital LLC and Genoa Asset Management LLC launched 10-year (UTEN.O), two-year (UTWO.O), and three-month (TBIL.O) dropped ETFs that will hold the most recent current Treasuries in the respective categories. Managers of the funds say this is well crafted precise tool for the fixed income investors that need a product like this. It gives new potential to bond investors in a precise way to tailor portfolios. There has been a flood into fixed income products as of late and funds are launching rapidly in response and will continue over the next half-decade.

Finsum: These tools can be utilized for investors wanting bond exposure, but not wanting to deal with the task of trading in the treasuries market and constantly updating

The Fed had its largest hike in two decades, and the ECB has gone ultra-dovish. This has sent a huge influx of Euro area investors into U.S.-short-durations bond ETFs. Funds like the iShares 3-7yr UCITS ETF had over $600 million in inflows last week. Short-duration corporate debt was also favored by euro area investors. Overall the bond market had seen an exodus in the previous weeks but this confluence of factors has been enough to entice investors. While the Fed has made up its mind they have contributed to inflation, bank heads in Europe are mixed which will leave policy to be accommodative for the near term.

Finsum: The Fed could be over-reacting and Europe could be under-reacting to inflation, but if Europe doesn’t tighten they will find their bond market in a similar position to the US a couple of weeks ago.

The IMF has warned investors that there are growing concerns about an emerging market debt crisis. There is anxiety that sluggish growth, higher interest rates, and surging inflation will hurt developing economies much more severely than developed ones. They will be disproportionately affected because highly indebted countries will have a dip in their investment and suffocate their currencies. These concerns aren’t new and emerged at the start of the pandemic, but this swell seems different. The Fed responded by pumping trillions into the economy in 2020 and they are doing the exact opposite now. Additionally, war and other risks are heightened now with Russia-Ukraine’s escalation.

Finsum: Investors searching for yield should be wary of emerging market bond funds given unprecedented risk levels.

Calling bond prices stubborn would be an understatement, and the bears have been continuing to pull investors out of the bond market in the mass exodus of outflows. The tides could be starting to shift, and the reasons are on opposite ends of the spectrum. Investing yield curves and recession indicators are flashing, which means investors will flock back to the bond market as a safe asset when equities fall. On the other side of things, if inflation is being driven by supply-side factors more than the Fed thinks, then inflation will fall dramatically, and less tapering will be needed to get there. This means bond prices could rise as yields fail to. Broad bond exposure is still a good idea with volatility rising.

Finsum: It’s been rough in the bond market the last few months, but there are economic reasons that could turn around.