We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Fed Reluctant On Yield Curve Control Scheme: ETFs to Gain/Lose
Read MoreHide Full Article
The Federal Reserve’s policymaking body released minutes of its Jul 28-29 meeting on Aug 19. The Fed gave a sombre outlook on the coronavirus-stricken economy. It noted that the course of economic recovery will depend on the progression of the virus. The ongoing public health crisis will continue to hurt economic activity, labor market and inflation in the near term.
On policy matters, "the committee members expressed skepticism over using bond purchases to control the government bond yield curve", as quoted on CNBC. The move was expected by many investors lately. As a result, post meeting, the benchmark 10-year U.S. treasury yield gained by one bps to 0.68% on Aug 19 from a day earlier. The yield on two-year treasuries were steady at 0.14%. Overall, the yield curve slightly steepened on Aug 19.
Against this backdrop, below we highlight a few ETFs that might gain/lose ahead.
Winners
Invesco DB US Dollar Index Bullish Fund (UUP - Free Report)
The U.S. dollar jumped against a basket of currencies on Aug 19. The fund UUP gained 0.8% on Aug 19 while it added 0.5% after hours (read: Best & Worst ETF Areas of July).
The fund gives exposure to debt instruments that pay a variable coupon rate, the majority of which are based on the three-month LIBOR, with a fixed spread. The fund has a low option adjusted duration of 0.14 years.
Unlike fixed coupon bonds, these do not lose value when the rates go up, making it ideal for protecting investors against capital erosion in a rising rate environment. Both factors make FLRN an intriguing choice to alleviate rising rate risks. The fund added 0.1% on Aug 19.
Gold pricesslid on a higher greenback. Selling pressure in the gold market built up as the minutes from the July monetary policy meeting indicated that the Fed is reluctant to cap bond yields. In any case, the gold market has been facing pressure lately on profit taking as the metal was trading around an all-time high a few day back. The fund GLD lost 3.2% on Aug 19 and shed 0.4% after hours.
Utilities is a rate-sensitive sector, which tends to perform well in a declining-rate environment. Since the latest Fed minutes steepened the yield curve slightly, the sector took a beating. The fund XLU lost 0.3% on Aug 19 and shed about 0.03% after hours.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Fed Reluctant On Yield Curve Control Scheme: ETFs to Gain/Lose
The Federal Reserve’s policymaking body released minutes of its Jul 28-29 meeting on Aug 19. The Fed gave a sombre outlook on the coronavirus-stricken economy. It noted that the course of economic recovery will depend on the progression of the virus. The ongoing public health crisis will continue to hurt economic activity, labor market and inflation in the near term.
On policy matters, "the committee members expressed skepticism over using bond purchases to control the government bond yield curve", as quoted on CNBC. The move was expected by many investors lately. As a result, post meeting, the benchmark 10-year U.S. treasury yield gained by one bps to 0.68% on Aug 19 from a day earlier. The yield on two-year treasuries were steady at 0.14%. Overall, the yield curve slightly steepened on Aug 19.
Against this backdrop, below we highlight a few ETFs that might gain/lose ahead.
Winners
Invesco DB US Dollar Index Bullish Fund (UUP - Free Report)
The U.S. dollar jumped against a basket of currencies on Aug 19. The fund UUP gained 0.8% on Aug 19 while it added 0.5% after hours (read: Best & Worst ETF Areas of July).
SPDR Bloomberg Barclays Investment Grade Floating Rate ETF (FLRN - Free Report)
The fund gives exposure to debt instruments that pay a variable coupon rate, the majority of which are based on the three-month LIBOR, with a fixed spread. The fund has a low option adjusted duration of 0.14 years.
Unlike fixed coupon bonds, these do not lose value when the rates go up, making it ideal for protecting investors against capital erosion in a rising rate environment. Both factors make FLRN an intriguing choice to alleviate rising rate risks. The fund added 0.1% on Aug 19.
Losers
SPDR Gold Shares (GLD - Free Report)
Gold pricesslid on a higher greenback. Selling pressure in the gold market built up as the minutes from the July monetary policy meeting indicated that the Fed is reluctant to cap bond yields. In any case, the gold market has been facing pressure lately on profit taking as the metal was trading around an all-time high a few day back. The fund GLD lost 3.2% on Aug 19 and shed 0.4% after hours.
Utilities Select Sector SPDR Fund (XLU - Free Report)
Utilities is a rate-sensitive sector, which tends to perform well in a declining-rate environment. Since the latest Fed minutes steepened the yield curve slightly, the sector took a beating. The fund XLU lost 0.3% on Aug 19 and shed about 0.03% after hours.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>