Rate Increases Poised to Resume
On Wednesday, the Federal Reserve began their two-day monetary policy meeting, and the markets are still expecting that rate hikes will ensue come December. In addition, analysts can foresee benchmark yields rising above their current levels.
“I think 3.5 percent to 3.75 percent is easy and unfortunately it would be nice to say that’s because the economy is great and everything is great and nominal GDP is 5 to 6 percent and we’re getting higher interest rates,” Boockvar told CNBC’s “Futures Now” on Tuesday.
High-Yield Bond ETFs Gain
Other post-midterm election winners were high-yield bond ETFs, such as the iShares iBoxx $ High Yield Corp Bd ETF (NYSEArca: HYG) and the ProShares High Yield—Interest Rate Hdgd (BATS: HYHG). HYG rose 0.45%, while HYHG gained 0.35%.
HYG tracks the investment results of the Markit iBoxx® USD Liquid High Yield Index, which is comprised of high yield U.S. corporate bonds that have less than investment-grade quality. HYS seeks to provide total returns that closely correspond to the ICE BofAML 0-5 Year US High Yield Constrained Index, which is comprised of U.S. dollar denominated below investment grade corporate debt securities publicly issued in the U.S. domestic market with remaining maturities of less than 5 years.
HYHG tracks the performance of the Citi High Yield (Treasury Rate-Hedged) Index and allocates 80% of its total assets in high-yield bonds and short positions in Treasury Securities in order hedge against rising rates. Because HYHG invests in high-yield bonds, there is credit risk associated with the higher yield since the fund invests in corporate issues that are less than investment-grade, but by targeting a duration of zero, HYHG offers less interest rate sensitivity versus its short-term bond peers.
Related: South Africa ETF’s Woes Can Continue
For more trends in fixed income, visit the Fixed Income Channel.