“Investors’ expectations for consumer-price increases are diminishing as the Federal Reserve debates how soon to raise its benchmark interest rate, which has been held close to zero since 2008 to support demand in the economy,” reports Susanne Walker for Bloomberg.
The Fed has been seeking 2% inflation but even with quantitative easing, U.S. inflation has missed the 2% goal for two and a half years, according to Bloomberg. If wage growth starts picking up as U.S. employers add more jobs next year, that could stoke inflationary pressures, making EDV and ZROZ vulnerable in the process.
Key to the 2015 outlook for EDV and ZROZ is the Fed’s timetable for raising interest rates. EDV has an effective duration of 25 years while ZROZ’s 27.2 years. EDV and ZROZ have already shown investors the risks of stripped coupons in rising rate environments. When Treasury yields spiked last year, EDV and ZROZ lost an average of 20.5%. [Why These Bond ETFs Have Surged]
PIMCO 25+ Year Zero Coupon US Treasury Index ETF
