With analytics pricing in four rate increases in 2022, Federal Reserve policy could dictate the fate of the bond markets, but dynamic exposure can help counter the Fed.
Federal Reserve Chairman Jerome Powell testified before the Senate Committee on Banking that he would do what’s necessary in order to fight inflation. Benchmark Treasury yields dipped during Tuesday’s trading session, which conversely pushed bond prices higher as Powell noted that he’d like to normalize monetary policy in 2022.
“We’re really just going to be moving over the course of this year to a policy that is closer to normal. But it’s a long road to normal from where we are,” Powell said.
Fixed income investors will certainly be looking for hawkishness when it comes to Fed policy, and bond investors are certainly hoping for less of it. So far, Powell doesn’t register too high on the hawkish scale.
“Overall, Powell was not overly hawkish as he paved the way for a lengthy debate over balance sheet reduction, with his normalization comments taking away some of the importance over tomorrow’s hot inflation report,” Oanda senior market analyst Edward Moya says in a note to clients.
Get Active Exposure
A way to get dynamic exposure that will flex with the market and the subsequent Fed moves is the FlexShares Core Select Bond Fund (BNDC). Active management helps eliminate the guesswork involved in choosing bond ETFs that suit an investor’s portfolio while maintaining the ability to make necessary position adjustments when the market deems it necessary.
Using its active management style, BNDC seeks total return and preservation of capital. The fund invests at least 80% of its net assets in U.S. dollar-denominated investment-grade fixed income securities either directly or indirectly through exchange traded funds and other registered investment companies.
“The ETF is actively managed by institutional fixed-income managers at Northern Trust, the adviser of the FlexShares funds,” a FlexShares Fund Focus notes. “These managers aim to build a diversified bond portfolio through existing ETFs, using both the FlexShares ETF family and ETFs from other providers, to provide exposure across sectors of the fixed income markets.”
“For example, the Fund captures exposure to the major fixed-income asset classes such as Treasuries, corporate bonds, and mortgage-backed securities (MBS), while also choosing ETFs that offer potentially more refined, value-added exposures to a variety of products such as TIPS,” the Fund Focus adds.
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