6 Bond ETFs To Play Higher Rates
Zacks Investment Research | Oct 06, 2016 10:44PM ET
The start of the fourth quarter has renewed worries over the Fed rate hike on a slew of positive economic indicators. Richmond Federal Reserve President, Jeffrey Lacker, early this week cited a strong case for a rate hike in December. Additionally, the probability of a Fed lift-off in December has increased to above 60% as per the federal-funds’ futures market while CME Group's (NASDAQ:CME) FedWatch Tool shows a 63% chance of an increase in December.
As a result, Treasury yields increased sharply with the 10-year yields now at 1.72% — the highest level in two weeks. This is especially true as manufacturing activity rebounded strongly in September with the ISM index rising to 51.5 from 49.4 in August. Additionally, the U.S. economy supposedly gained momentum in Q2 with GDP growth revised to 1.4%, up from 1.1% from the previous estimate and 0.8% recorded in Q1.
Consumer confidence spiked to the highest level since recession in September, as measured by the Conference Board, while it climbed for the first time in four months as per the Thomson Reuters/University of Michigan index. Fresh worries that ECB will gradually cut its €80 billion bond buying program ahead of the planned conclusion in March 2017 and risk-on trade have also contributed to the increase in yield.
Given the improving fundamentals, an increase in rates seems justified. As rates rise, bond investors might experience heavy losses given that bond prices and yields have an inverse relationship. While this is true, there are still several compelling choices in the fixed income ETF world that could protect investors from rising rates (read: Original post
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.