Treasury Yields Jump After Fed Official Hints at More Rate Hikes

Short-term treasury yields jumped up on Friday after Federal Reserve governor Christopher Waller said that the U.S. central bank can be expected to continue raising interest rates since inflation is “still much too high.”

“Monetary policy needs to be tightened further,” said Waller in a speech in San Antonio on Friday. “I would welcome signs of moderating demand, but until they appear, and I see inflation moving meaningfully and persistently down toward our 2% target, I believe there is still more work to do.”

Following Waller’s remarks, the U.S. 2-year Treasury yield reached 4.091% after trading closed on Friday, up from 3.977% at the end of trading on Thursday. The six-month Treasury yields rose to 5.02%, up from the previous close of 4.947%.

The Fed raised its benchmark interest rate by 25 basis points in March – its ninth consecutive rate hike – bringing the Fed funds rate range to 4.75% and 5%. Fed funds futures traders believe there’s a nearly 80% likelihood of the Fed raising interest rates by another 25 bps in May, bringing the U.S. central bank main policy rate target range to 5% and 5.25%, per the CME FedWatch Tool.

See more: “Vanguard’s Jackson and Johnson on Indexed Muni Demand

Investors looking to cash in on these rising yields in short-term Treasuries may want to consider the Vanguard Short-Term Treasury ETF (VGSH) and the Vanguard Intermediate-Term Treasury ETF (VGIT).

VGSH seeks to provide current income with modest price fluctuation, invests primarily in high-quality (investment-grade) U.S. Treasury bonds, and maintains a dollar-weighted average maturity of one to three years.

VGIT, meanwhile, seeks to track the performance of a market-weighted Treasury index with an intermediate-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. Treasury 3-10 Year Bond Index, which includes fixed income securities issued by the U.S. Treasury (not including inflation-protected bonds) with maturities between three and 10 years.

Both ETFs have an expense ratio of four bps.

At Exchange 2023, Vanguard CEO Tim Buckley said that the asset manager’s goal is “to make sure we’re producing the top-performing funds and ETFs out there.”

“We’ll wrap it with low-cost, scalable advice and deliver them on a world-class, digitally enabled platform,” he added. “And if you do that well and you can keep improving it, you’ll create value into the future.”

For more news, information, and analysis, visit the Fixed Income Channel.