Investing

Rates to Remain Higher for Longer? ETFs to Benefit

Sanghamitra Saha

Published: August 16, 2023 10:34 pm

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, quoted on Yahoo.

Investors are bracing for continued volatility in US Treasuries, as economic uncertainties persist. There are chances of a longer-than-expected period of elevated interest rates.

Hawkish Message and High Levels of Uncertainty

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.At Barclays, strategists have advised clients to sell two-year Treasuries on anticipation that rates will remain elevated next year, going opposite to the latest speculation that the Fed will initiate a series of rate cuts as soon as March, the Bloomberg article noted.

“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.”

That uncertainty, along with an increase in new debt sales as the federal government contends with rising deficits, has wreaked havoc on the bond market. Even with the sharp jump in interest rates, the overall Treasury market returned just 0.1% this year, according to Bloomberg’s index, falling shy of the solid gains once expected to happen when the end of the Fed’s hiking came into the sight.

What Will Happen in September Meeting?

So far, the key economic reports pointed to 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, which is a cause of concern.

There annual gathering of global central bankers in later this month in Jackson Hole, Wyoming, will also be closely watched. And it is expected that the Fed chief Powell may give signals of its key rate to be around 4% by January 2025. It’s in a range 5.25-5.5% now.

What Are Market Trends?

Despite these 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.

ETFs to Benefit

Against this backdrop, investors can hedge the rising rate trend with the below-mentioned ETFs. These ETFs beat the tech-heavy Nasdaq-100 ETF QQQ (down 0.64%) on Aug 11.

ETFs to Hedge Rising Rate Trend

Simplify Interest Rate Hedge ETF PFIX – Up 0.14% on Aug 11

Global X Interest Rate Hedge ETF RATE – Up 1.90% on Aug 11

Foliobeyond Rising Rates ETF RISR – Up 1.2% on Aug 11

Advocate Rising Rate Hedge ETF RRH – Up 0.74% on Aug 11
Global X Interest Rate Hedge ETF (RATE): ETF Research Reports

Simplify Interest Rate Hedge ETF (PFIX): ETF Research Reports

FolioBeyond Alternative Income and Interest Rate Hedge ETF (RISR): ETF Research Reports

Advocate Rising Rate Hedge ETF (RRH): ETF Research Reports

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