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Treasury Yields Jump to Start New Year: ETFs to Play
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U.S. government bond yields rose to their highest levels since November to start 2022. The yield on the benchmark 10-year Treasury was 1.63%, up from 1.52% recorded on Dec 31, 2021. The Fed is expected to enact its first rate hike in three years in about two months, to counter inflation. The U.S. central bank already paced up QE tapering, upped its economic growth projections, raised its inflation outlook and cut the unemployment rate projections.
The Fed’s December meeting projections revealed that 12 out of 18 FOMC members expect at least three rate increases in 2022. All 18 policymakers have also indicated the possibility of at least one rate hike before 2022 end (read: Warm Up Your Portfolio With These ETFs This Winter).
Rates have been rising fast in the United States over the past few weeks on growing risk appetite and reflationary optimism. Given this, investors must be interested in finding out the ways to weather a sudden jump in the benchmark bond yields and increased inflationary expectations.
The underlying FTSE 30-Year TIPS (Treasury Rate-Hedged) Index tracks the performance of long positions in the most recently issued 30-year TIPS and duration-adjusted short positions in U.S. Treasury bonds of, in aggregate, approximate equivalent duration dollars to the TIPS. It charges 30 bps in fees.
The underlying Bloomberg Barclays US Floating Rate Note < 5 Years Index comprises of U.S. dollar-denominated, investment-grade floating rate bonds with remaining maturities between one month and five years. The fund charges 15 bps in fees.
ProShares High Yield Interest Rate Hedged (HYHG - Free Report)
The underlying FTSE High Yield (Treasury Rate-Hedged) Index is comprised of long positions in USD-denominated high yield corporate bonds and short positions in U.S. Treasury notes or bonds of approximate equivalent duration. Such technique of interest-rate hedging makes the fund well positioned to play in a rising rate environment. The fund charges 51 bps in fees and yields 4.54% annually.
Invesco S&P MidCap 400 Pure Value ETF (RFV - Free Report)
Value funds normally fare better in a rising-rate environment. Investors should note that value stocks underperform growth stocks in a low-rate environment. With the yield on 10-year Treasuries making an uptrend, there could be shift from momentum to value shares.
Rising rates add strength to the U.S. dollar. This is going to favor small-cap stocks which are more domestically exposed. Since these companies do not have much exposure to the international markets, a higher greenback does not bother their profitability.
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Treasury Yields Jump to Start New Year: ETFs to Play
U.S. government bond yields rose to their highest levels since November to start 2022. The yield on the benchmark 10-year Treasury was 1.63%, up from 1.52% recorded on Dec 31, 2021. The Fed is expected to enact its first rate hike in three years in about two months, to counter inflation. The U.S. central bank already paced up QE tapering, upped its economic growth projections, raised its inflation outlook and cut the unemployment rate projections.
The Fed’s December meeting projections revealed that 12 out of 18 FOMC members expect at least three rate increases in 2022. All 18 policymakers have also indicated the possibility of at least one rate hike before 2022 end (read: Warm Up Your Portfolio With These ETFs This Winter).
Rates have been rising fast in the United States over the past few weeks on growing risk appetite and reflationary optimism. Given this, investors must be interested in finding out the ways to weather a sudden jump in the benchmark bond yields and increased inflationary expectations.
For them, below we highlighted a few ETFs.
ETFs in Focus
ProShares Inflation Expectations ETF (RINF - Free Report)
The underlying FTSE 30-Year TIPS (Treasury Rate-Hedged) Index tracks the performance of long positions in the most recently issued 30-year TIPS and duration-adjusted short positions in U.S. Treasury bonds of, in aggregate, approximate equivalent duration dollars to the TIPS. It charges 30 bps in fees.
iShares Floating Rate Bond ETF (FLOT - Free Report)
The underlying Bloomberg Barclays US Floating Rate Note < 5 Years Index comprises of U.S. dollar-denominated, investment-grade floating rate bonds with remaining maturities between one month and five years. The fund charges 15 bps in fees.
ProShares High Yield Interest Rate Hedged (HYHG - Free Report)
The underlying FTSE High Yield (Treasury Rate-Hedged) Index is comprised of long positions in USD-denominated high yield corporate bonds and short positions in U.S. Treasury notes or bonds of approximate equivalent duration. Such technique of interest-rate hedging makes the fund well positioned to play in a rising rate environment. The fund charges 51 bps in fees and yields 4.54% annually.
Invesco S&P MidCap 400 Pure Value ETF (RFV - Free Report)
Value funds normally fare better in a rising-rate environment. Investors should note that value stocks underperform growth stocks in a low-rate environment. With the yield on 10-year Treasuries making an uptrend, there could be shift from momentum to value shares.
iShares Russell 2000 ETF (IWM - Free Report)
Rising rates add strength to the U.S. dollar. This is going to favor small-cap stocks which are more domestically exposed. Since these companies do not have much exposure to the international markets, a higher greenback does not bother their profitability.