Short-term Treasury ETFs Could Weaken as Fed Withdraws Support | ETF Trends

Treasury yields are rising in the low end of the yield-curve as investors anticipate the eventual end to the Fed’s monthly bond purchasing program. Consequently, short-term bond and related exchange traded fund prices could begin to decline.

Before the U.S. sells $30 billion of 3-year Treasury notes, investors pushed up 3-year note yields to 0.81%, the highest since September 10 when yields were at 0.897%, Bloomberg reports. The yields on 3-year notes currently hover around 0.77%.

Bond prices have an inverse relationship to yields, so a rising yield corresponds to falling prices.

Treasury prices have been weakening after the latest U.S. economic data revealed employers are adding more jobs than expected last month, which fueled speculation that the Fed would continue tapering quantitative easing.

“For some at the shorter end, any expectation that the Fed would slow tapering has now been reduced to zero,” Dan Greenhaus, chief global strategist, said in the article. “What you’re seeing at the short end is a push to higher yields as that expectation is priced out of the market.”