- Treasury bond-related ETFs could continue to weaken as rising inflation and Federal Reserve interest rate normalization send yields higher
- Investors have raised bets on the Fed moving rates in 2016 after a gauge of inflation expectations
- The probability of the Fed hiking rates this year rose to 78%, the highest in two months
Despite concerns about ongoing market volatility, Treasury bond-related exchange traded funds could continue to weaken as rising inflation and Federal Reserve interest rate normalization send yields higher.
The iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) declined 1.8% over the past month, dipping below its short-term 50-day simple moving average, as yields on benchmark 10-year Treasury bonds rose to 1.959% from a 1.567% low in mid-February.
The Treasury bond market may continue to experience more weakness ahead. PIMCO Fund Manager Mark Kiesel projects U.S. 10-year yields will increase to a range of 2% to 2.5% this year, reports Wes Goodman for Bloomberg.
Supporting the rising yield outlook, investors have raised bets on the Fed moving rates in 2016 after a gauge of inflation expectations for the coming 12 months rose to its highest in almost a year. However, most market observers believe policy makers will stand pat on their ongoing two-day meeting.
“We see one to two rate hikes this year for the Fed, whereas the market is only expecting only one,” Kiesel said. “If rates were to head towards 2.5 percent, we would be looking to add at that level.”