Recent interest rate volatility has triggered greater oscillations across asset classes in recent weeks, and the Federal Reserve further fanned the flames after releasing minutes from a January meeting this week.
The lower Treasury yields on Friday also made utilities look more attractive on a yield standpoint. XLU has a 3.43% 12-month yield, VPU comes with a 3.28% 12-month yield and FXU shows a 3.89% 12-month yield.
Nevertheless, the utilities sector remains sensitive to changes in interest rates. 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.
For more information on the utilities sector, visit our utilities category.