Another interpretation might be that investors simply aren’t convinced of the economy’s readiness for a hike, but expect the Fed to pull the trigger anyway. In the absence of an improved growth outlook, if the Fed does raise rates this summer, the long end of the curve may prove to be relatively stable, while the short end may exhibit higher volatility.
2. If the Fed doesn’t raise rates this summer, markets may conclude that the economy isn’t as healthy as the Fed had projected it would be. This, too, could put downward pressure on rates.
Whether or not the Fed raises its target, the road to a steeper curve could prove long and meandering. As the economy traverses it, investors with exposure to longer maturities may be well positioned to benefit from range-bound rates.
Talk with your financial advisor
Investors who expect continued stability at the long end of the curve may wish to talk with their financial advisors about how these PowerShares’ fixed income exchange-traded funds may offer tactical, targeted exposure to longer maturities and higher duration:
PowerShares 1-30 Laddered Treasury Portfolio (PLW)
PowerShares Build America Bond Portfolio (BAB)
PowerShares National AMT-Free Municipal Bond Portfolio (PZA)*
* Within the past 12 months, changes to the Funds’ name and investment objective have occurred. For more information about these changes, please see the Funds’ prospectus.
1 Source: Bloomberg FOMC Survey, conducted Jan. 23-26, 2015
2 Source: Bloomberg News, Jan. 30, 2015
3 Source: Bloomberg News, Jan. 27, 2015
Important information
The Federal Open Market Committee is a 12-member committee of the Federal Reserve Board that meets regularly to set monetary policy, including the interest rates that are charged to banks. Duration is a measure of the sensitivity of the price of a fixed income investment to interest rate changes. The fed funds rate is the overnight interest rate one depository institution charges another for lending funds maintained at the Federal Reserve. A basis point is equal to 0.01%.