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Treasury Yields Rise Ahead of Central Bank Meetings

This article was originally published on ETFTrends.com.

The capital markets are bracing themselves ahead of a Federal Open Market Committee meeting on Tuesday and a subsequent monetary policy announcement on Wednesday, which should give indications on the current state of the economy.

Meanwhile, benchmark Treasury yields gained--the 10-year rose to 2.973% as of 2:45 p.m. ET and the 30-year yield ticked up to 3.102%. The 10-year Treasury hit as high as 2.99%, reaching its highest level in over a month.

The meeting comes before the Department of Commerce stated last week that gross domestic product grew by 4.1% in the month of June--its fastest since the third quarter of 2014 and the third-best growth rate dating all the way back to the Great Recession. Furthermore, the Department of Commerce revised its first-quarter numbers to show a 2.2 percent increase rather than 2 percent.

Related: Possible Carnage in the Bond Market

The increase in GDP was spurned by a mix of tax cuts, deregulation and spending increases. The Fed expects GDP to rise 2.8 percent for 2018 in the aggregate, but diminish to 2.4 percent in 2019 followed by 2 percent in 2020.

The prevailing sentiment is that Fed Chair Jerome Powell and the FOMC are set to raise interest rates two more times through 2018.

"The U.S. on a standalone basis has exited this new normal, is now find a higher growth equilibrium," said Bloomberg Opinion columnist Mohamed El-Erian.

Rate-Hedged Fixed-Income ETFs Rise with Yields

Today's strength in the benchmark yields hasn't stopped corporate bonds with rate-hedged strategies like the ProShares Investment Grade—Intr Rt Hdgd (IGHG) and  Xtrackers Inv Grd Bd Intst Rt Hdg ETF (IGIH)  from posting gains. IGHG was up 0.85% today and and IGIH was up 1.51%.

IGHG investment seeks investment results that track the performance of the Citi Corporate Investment Grade (Treasury Rate-Hedged) Index, which is comprised of long positions in USD-denominated investment grade corporate bonds issued by both U.S. and foreign domiciled companies and short positions in U.S. Treasury notes or bonds. IGIH tracks the Solactive Investment Grade Bond - Interest Rate Hedged Index, which is comprised of long positions in U.S. dollar-denominated investment-grade corporate bonds and short positions in U.S. Treasury notes or bonds.

IGHG and IGIH could continue to benefit should the Fed stay the course with their rate rises despite any instances of U.S. President Donald Trump using the bully pulpit to affect rates. The president voiced his concern for rising rates, stating that he was "not happy" with the latest increases.

"We as an administration absolutely support the independence of the Fed, and the president has made it clear that this is the Fed's decision," said Treasury Secretary Steven Mnuchin "The market expects interest rates to keep going up. So, the only question is how far and for how long? And we think the Fed will be very careful in managing the economy."

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

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