Long-Term Yields Rise, Short Fall as Fed Chair Tones Down Rate-Hiking Policy

The Dow Jones Industrial Average sprinted past 400 points following Powell’s speech.

“It’s a game of semantics because after a rate hike in two weeks, the fed funds range is going to be 2.25-2.50 percent, and if 3 percent is neutral, then 2.5 is just below 3. The market is taking this as maybe we’ve got two hikes left, and we’re close. It’s a word game, but I think that’s what people are latching onto,” said Peter Boockvar, chief investment officer at Bleakley Financial.

Short-Term Bond ETF Exposure

As yields fell and bond prices rose for short-term notes following Powell’s latest comments, retail investors may want to look at short-term debt through investment vehicles like fixed-income exchange-traded funds (ETFs). An example would be the SPDR Portfolio Short Term Corp Bd ETF (NYSEArca: SPSB), which seeks to provide investment results that correspond to the performance of the Bloomberg Barclays U.S. 1-3 Year Corporate Bond Index.

Another short-term bond ETF option is the iShares 1-3 Year Credit Bond ETF (NASDAQ: CSJ), which tracks the investment results of the Bloomberg Barclays U.S. 1-3 Year Credit Bond Index where 90 percent of its assets will be allocated towards a mix of investment-grade corporate debt and sovereign, supranational, local authority, and non-U.S. agency bonds that are U.S. dollar-denominated and have a remaining maturity of greater than one year and less than or equal to three years–this shorter duration is beneficial during recessionary environments.

For more trends in fixed income, visit the Fixed Income Channel.