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Treasury Yields Retreat Ahead of Fed Rate Decision Today

This article was originally published on ETFTrends.com.

Investors appear ready to continue forward with the rate-hiking prescription written for the federal funds rate by the Federal Reserve who will announce their interest rate decision later today. It's widely expected that Fed Chairman Jerome Powell will announce another rate hike to temper economic growth, causing benchmark Treasury yields to retreat--the 10-year fell to 3.078 and the 30-year yield notched lower to 3.213.

The Fed began its two-day monetary policy meeting yesterday as they are likely to pore over a bevy of data showing the economy is moving forward at full speed, including an extended bull stock market run that has already seen major indexes like the S&P 500 reach record levels. Just recently, J.P. Morgan Chase CEO Jamie Dimon reaffirmed the forward momentum of the current bull market as he cited that the economy will sustain its fortuitous path of growth without any obstructions ahead.

“In America, the economy is quite strong. It’s growing at 3 percent. And it has been now for a couple of quarters,” said Dimon. “There are no great potholes. So that may very well continue.”

Since U.S. President Donald Trump’s administration took office, the country’s gross domestic product has grown by an average of 2.7%  per quarter. In addition, the final estimate for second-quarter GDP is expected to show a revision of 4.3% growth, while the third quarter growth is forecasted to come in around 3.3%.

During the rate decision announcement, Powell is expected to answer a battery of questions that could include potential threats that could stymie the economy, the implications caused by trade wars and political influence on the Fed.

"On Wednesday, our team expects Powell to highlight the growing upside risks to the economic backdrop, downplay the potential impact of tariffs on the economy, and dodge any questions on the politicization of the Fed," said Lori Calvasina, the head of US equity strategy at RBC Capital Markets, in a preview.

Related: Survey Unanimous Fed will Raise Rates Twice More this Year

Corporate Bond ETFS in the Green

With the expectancy high that rates are on the rise, corporate bond ETFs like the Xtrackers Hi Yld Cor Bd Intst Rt Hdg ETF (HYIH), iShares Interest Rate Hedged Corp Bd ETF (LQDH and iBoxx $ Invmt Grade Corp Bd ETF (LQD) were on the move. HYIH gained 1.38%, LQDH was up 0.21% and LQD rose 0.16% as of 2:00 p.m. ET.

HYIH seeks investment results that correspond generally to the performance of the Solactive High Yield Corporate Bond-Interest Rate Hedged Index. HYIH will invest at least 80% of its total assetsin instruments that comprise the underlying index, such as long positions in U.S. dollar-denominated high yield corporate bonds and shorts in U.S. Treasury notes or bonds of approximate equivalent duration to the high yield bonds.

LQDH seeks to mitigate the interest rate risk of a portfolio composed of U.S. dollar-denominated, investment-grade corporate bonds without being tied to an underlying index. LQD is actively-managed and seeks to invest in one or more underlying funds that principally invest in investment-grade bonds, and in U.S. Treasury securities (or cash equivalents).

LQD seeks to track the investment results of the Markit iBoxx® USD Liquid Investment Grade Index composed of U.S. dollar-denominated, investment-grade corporate bonds. LQD allocates 95 percent of its total assets in investment-grade corporate bonds to mitigate credit risk.

 

For more trends in fixed income, visit the Fixed Income Channel.

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