“Utility yields look enticing when Treasuries are yielding under 2% but look less so when the yield gap starts closing. That’s already starting to happen as the market appears to be preparing itself for what feels like an imminent rate if not at the December Fed meeting then soon in 2017. Since July 1st, the 10 year Treasury yield has jumped from just under 1.4% to around 1.8%,” according to ETF Daily News.
Related: Low U.S. Interest Rates Boost International Dividend ETFs
The fortunes of the utilities sector seem to be tied to the Federal Reserve’s interest rate outlook. Once the Fed eventually hikes interest rates, the higher rates will make fixed-income instruments more attractive on a relative basis, and bond-like equities, like utilities, less enticing. Consequently, utilities may remain flat or underperform other segments of the equities market once rates start ticking higher.
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Shares Select Dividend ETF (NYSEArca: DVY)
Tom Lydon’s clients own shares of DVY.