The release of the monthly Federal Reserve meeting minutes
threw bond ETFs for a loop on Wednesday as investors digested the
Key announcements included a $10 billion per month reduction
in purchases of treasuries and mortgage-backed securities along
with a consensus that the Fed would begin tightening monetary
policy by 2015.
The hardest hit area of the interest rate curve was in the
10-Year Treasury Note Yield (NYSE:
) which rose sharply on Wednesday to a closing level of 2.77
That in turn prompted a strong downward thrust in the iShares
7-10 Year Treasury Bond ETF (NYSE:
) along with complimentary moves in the iShares TIPS Bond ETF
) and iShares Investment Grade Bond ETF (NYSE:
All of these bond ETFs are focused on intermediate duration
fixed-income securities with high credit ratings which makes them
more susceptible to interest rate risk than a short duration
A Global ETF For Investing In The Ashes
Investors are clearly nervous that the reduction in
quantitative easing efforts is going to lead to higher interest
rates and further economic guidance by the Fed may prompt them to
tighten policy faster than expected.
If that is the case, the key area to watch for fixed-income
investors will be 3.0 percent on the 10-Year Treasury Yield, as
that was the prior high that was established at the end of 2013.
A break above that level would likely lead to another wave of
selling in fixed-income and investors moving to rising rate funds
such as the ProShares Short 20+ Year Treasury Bond ETF (NYSE:
) for protection.
On the flip side, a slowdown in economic activity or equity
momentum may send money pouring back into save haven assets such
as treasury bonds to counteract those threats.
The one thing to be cautious of is to not get too caught up in
the initial reaction to the Federal Reserve meeting as a trading
trigger. Often times these days are characterized by swift moves
in stocks, bonds, and gold which can change dramatically in the
Keep in mind that 2014 has been characterized by sentiment
changes across many asset classes and additional volatility can
be expected moving forward.
© 2014 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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