U.S. Treasury markets have been going through doldrums since March 2022 as the Federal Reserve started hiking rates in a steep fashion to tame inflation. Though the pace and quantum of rate hikes have slowed this year, rates are still elevated. In July, the Fed hiked its rates by 25 bps to a range 5.25-5.5%.
The benchmark 10-year U.S. Treasury yields started the year at 3.79%, hit a low of 3.3% and a high of 4.20% and was closed at 4.16% on Aug 11, 2023. The two-year U.S. treasury yield started the year at 4.4%, hit a low of 3.75% and a high of 5.05%, and was closed at 4.89% on Aug 11, 2023.
Wall Street has been heaving a sigh of relief as speculation grows that the Federal Reserve might finally halt its streak of interest rate hikes. However, this doesn’t signal an end to turbulence in the bond market, per a Bloomberg article, as quoted on Yahoo.
What Are the Market Trends?
Despite the doldrums, some investors have been pouring money into the Treasury market, attracted by higher interest rates and fearing that this year’s stock market rally is unsustainable. The put the U.S. Treasuries on course for a record year of inflows, according to Bank of America Corp. strategists, quoted on Bloomberg.
These bond ETFs have trumped the year-to-date inflows of SPDR S&P 500 ETF Trust SPY ($2.58 billion) and Invesco QQQ Trust QQQ (i.e., $3.59 billion). Some bond ETFs have even topped the year-to-date inflows of iShares Core S&P 500 ETF IVV (i.e., $10.14 billion).
5 Bond ETFs Gaining All the Love
iShares 20+ Year Treasury Bond ETF (TLT) – YTD Inflows: $14.87 billion
iShares Core U.S. Aggregate Bond ETF (AGG) – YTD Inflows: $11.65 billion
Vanguard Total Bond Market Index Fund (BND) – YTD Inflows: $10.39 billion
iShares 7-10 Year Treasury Bond ETF (IEF) – YTD Inflows: $6.24 billion
iShares 0-3 Month Treasury Bond ETF (SGOV) – YTD Inflows: $6.17 billion
Hawkish Fed Message
Already, some Fed officials have indicated that there may still be more work to do as inflation continues to hold above their 2% target despite the most aggressive monetary policy tightening in four decades.“The rise in long-dated yields has been driven by the hawkish message from the Fed,” said Rob Waldner, chief strategist fixed income at Invesco, quoted on Bloomberg. “The central bank is staying hawkish and that’s keeping uncertainty high.”
What Will Happen in the September Meeting?
So far, the key economic reports have pointed the fact that rates will be held steady in September, with job growth cooling and signs of easing inflation. But the core consumer price index — which bars volatile food and energy prices and is seen as a better measure of underlying inflation pressures — still rose at a 4.7% annual pace in July, leading the Fed to hike rates further.
The annual gathering of global central bankers later this month in Jackson Hole, WY, will also be closely watched. And it is expected that Fed Chief Jerome Powell may give signals that the central bank’s key rate will be around 4% by January 2025.
In a nutshell, although TLT has lost 6% so far this year against the 17% gains in SPY, TLT has become able to amass a solid asset base so far this year.
iShares 20+ Year Treasury Bond ETF (TLT): ETF Research Reports
Invesco QQQ (QQQ): ETF Research Reports
SPDR S&P 500 ETF (SPY): ETF Research Reports
iShares 7-10 Year Treasury Bond ETF (IEF): ETF Research Reports
Vanguard Total Bond Market ETF (BND): ETF Research Reports
iShares Core U.S. Aggregate Bond ETF (AGG): ETF Research Reports
iShares Core S&P 500 ETF (IVV): ETF Research Reports
iShares 0-3 Month Treasury Bond ETF (SGOV): ETF Research Reports
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