The Omicron variant and inflation continue to add a dosage of uncertainty in the capital markets, which is causing yields to tick higher.
The latest COVID-19 variant has certainly usurped the headline news as of late, especially heading into the winter months, when rising cases are expected to occur. In the backdrop, inflation continues to remain a concern as the Federal Reserve looks to back off its stimulus program and begin raising rates in 2022.
With investors caught in a 24-hour news cycle, it appears that vaccination boosters are an option to protect against the Omicron variant. The topic of inflation seems to be in “wait and see” mode, as the Fed can be prone to shift with the changing market landscape.
At one point, the Fed was insistent that inflation would be transitory, and as such, rates have been kept near zero for quite some time. Now, with consumer prices rising the way they have been in 2021, the narrative of more persistent inflation is entering Fed discussion.
“Great news from Pfizer that a booster will work in adding solid protection against Omicron and stocks are celebrating but I want to emphasize that what the Fed does from here should be the market’s predominant focus,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group.
“At least with QE, the Fed is ending a $1.44 Trillion annualized asset purchase program possibly within the next 3 months. That is a lot of liquidity flow that is going to zero, quickly,” Boockvar added.
Get Long-Term Treasury Exposure
Fixed income investors who want more yield but aren’t looking to invest in riskier debt may want to look at the Vanguard Long-Term Treasury Index Fund ETF Shares (VGLT). With its paltry expense ratio of just 0.05%, cost-conscious fixed income investors who want exposure to long-dated Treasury notes can have the fund they’re looking for in VGLT.
VGLT seeks to track the performance of a market-weighted Treasury index with a long-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Long Treasury Bond Index.
This index includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities greater than 10 years. Under normal circumstances, at least 80% of the fund’s assets will be invested in bonds included in the index.
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