Exchange traded funds that track assets typically associated with high interest rate risk are pushing higher after the Federal Reserve tightened its monetary policy, suggesting that Wednesday’s expected rate decision was already fully priced into the market.
The Federal Reserve raised its benchmark lending rate a quarter point and projected two more rate increases this year due to an improving labor market and rising inflationary pressures.
“In view of realized and expected labor market conditions and inflation, the committee decided to raise the target range for the federal funds rate,” the Federal Open Market Committee said in its statement Wednesday. “Near-term risks to the economic outlook appear roughly balanced.”
Nevertheless, gold miners were among the best performers, spiking after the announcement. On Wednesday, the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) rose 0.7% as Comex gold futures gained 0.9% to $1,213.5 per ounce.
The VanEck Vectors Gold Miners ETF (NYSEArca: GDX) surged 6.4% and VanEck Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) jumped 9.5%.
Long-term Treasury bond ETFs were also pushing higher, with the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) up 1.0%, PIMCO 25+ Year Zero Coupon US Treasury (NYSEArca: ZROZ) up 1.5% and Vanguard Extended Duration Treasury ETF (NYSEArca: EDV) up 1.4%. Yields on benchmark 10-year Treasury bonds dipped 6 basis points to 2.54%.
The Utilities Select Sector SPDR (NYSEArca: XLU), which has traditionally weakened in face of rising rates along with fixed-income market, was also among the better performing sectors of the equities market, rising 1.6% mid-Wednesday after the Fed decision.
These asset categories that were seemingly more at risk of a rising rate environment may have been oversold prior to the Federal Reserve’s announcement, which allowed the investments to bounce back once the markets and observers gained a clearer picture on the Fed’s monetary policy.
In contrast, popular higher rate plays did not pop off. For instance, the Financial Select Sector SPDR (NYSEArca: XLF) was relatively muted in light of the rising interest rate outlook, remaining unchanged after the Fed’s decision.