“I think what really matters (about the yield curve) is what the neutral rate of interest is,” said Powell. “And I think people look at the shape of the curve because they think that there’s a message in longer-run rates, which reflect many things, but that longer-run rates also tell us something, along with other things, about what the longer-run neutral rate is. That’s really, I think, why the slope of the yield curve matters. So I look directly at that.”
Related: Global Fixed Income Views: Q3 2018
Corporate Bond ETFs Gain
Fixed-income ETFs in the corporate bond space moved higher amid Powell’s recent comments, signaling the continued trend by fixed-income investors moving into higher-yield, higher-risk debt securities as the Fed continues its hawkish view of the economy. The iShares iBoxx $ High Yield Corp Bd ETF (NYSEArca: HYG) gained 0.11%, Vanguard Short-Term Corporate Bond ETF (NASDAQ: VCSH) edged 0.04% higher and PIMCO 0-5 Year High Yield Corp Bd ETF (NYSEArca: HYS) gained slightly at 0.05%.
“If you have a bond portfolio that’s mixed, the Treasury portion of your portfolio is probably challenged and the high-yield portion is probably doing well,” said ETF Trends President Tom Lydon.
For more trends in fixed income, visit the Fixed Income Channel.