ETFs
Disinflation Hopes Reshape Major Trend in Treasury Yields: 5 Bond ETFs Poised to Rally Following Fed Rate Cuts – Vanguard Total Bond Market ETF (NASDAQ:BND), iShares JP Morgan USD Emerging Markets Bond ETF (NASDAQ :EMB)
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This is Nic Chahine’s average with his options purchases. Do not sell calls or covered spreads… BUY options. Most traders don’t even have a 27% winning percentage when buying options. He has a win rate of 83%. Here’s how he does it.
A major trend shift is occurring in the bond market, as major Treasury yields are currently testing support at the crucial 200-day moving average, following the release of favorable economic data that cemented investors’ bets on Federal Reserve rate cut.
Last month, the inflation rate calculated using the Consumer Price Index (CPI) stood at 3.4% compared to the same month last year, down from at 3.5% in March and in line with the forecast increase of 3.4%. The “core” inflation rate, which excludes volatile energy and food prices, also matched estimates, rising to 3.6% from 3.8%.
April’s inflation figures raised hopes of a resumption of the disinflationary trend after three consecutive better-than-expected CPI readings in the first quarter.
In his recent comments, the Chairman of the Federal Reserve Jerome Powell downplayed concerns about a possible rise in interest rates, signaling that the next adjustment would likely be a reduction. However, he stressed that this reduction could come later than the markets had initially expected.
Money markets are currently pricing in a 50 basis point cut in interest rates by the end of the year, with a 70% chance that the Federal Reserve will begin its easing cycle in September.
The yield on the benchmark 10-year Treasury note traded around 3.36% on Thursday, hitting an intraday low of 3.31%, temporarily slipping below the 200-day average positioned at 3.33%. .
Similarly, 2- and 30-year Treasury yields are currently testing 200-day average support.
The 200-day moving average is a widely watched technical indicator that helps investors gauge the long-term trend of a stock or index.
When Treasury yields fall below this level, it often signals a bearish or downward trend, suggesting that investors are seeking safer assets amid expectations of a slowing economy or decline. a drop in interest rates. This change may create a more favorable environment for bond prices, which move inversely to yields.
Here’s a look at current yield levels relative to their 200-day moving averages, as well as their high-low range for 2024.
| 2 years | 4.78% | 4.75% | 5.05% | 4.12% |
| 5 years | 4.39% | 4.35% | 4.75% | 3.75% |
| 10 years | 4.36% | 4.33% | 4.74% | 3.82% |
| 30 years | 4.50% | 4.48% | 4.85% | 4.07% |
Updated May 16, 2024 (11:45 a.m. EDT)
Read also: US inflation data was released prematurely by accident, but traders missed a golden opportunity
The move in Treasury yields has paved the way for a rally in bond ETFs, particularly those focused on long-duration bonds.
Here are five bond ETFs poised to benefit from growing expectations of Fed rate cuts:
- iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT): This ETF tracks long-term U.S. Treasury bonds and is particularly sensitive to changes in interest rates. With long-term yields falling, TLT could see significant gains as it moves inversely to yields. In response to April’s inflation data, it rose 1.4% on the day.
- Vanguard Total Bond Market Index Fund ETF (NYSE:BND): A broader option, BND includes a mix of short, medium and long-term bonds. Its diversified approach makes it a stable choice as market sentiments evolve. Following the latest inflation statistics, the BND increased slightly by 0.6%.
- iShares iBoxx $Investment Grade Corporate Bond ETF (NYSE:LQD): As expectations of rate cuts build, investment-grade corporate bonds could see their prices rise. LQD provides exposure to this segment.
- Bloomberg SPDR High Yield Bond ETF (NYSE:JNK): Higher risk and higher reward, JNK covers the high-yield, or “junk,” bond market. Rate cuts often boost these bonds as investors seek yield.
- iShares JP Morgan USD Emerging Market Bond ETF (NYSE:OGE): As Treasury yields fall and the Fed hints at a slower pace of rate hikes, emerging market bonds could benefit from investors’ increased appetite for higher-yielding assets. Notably, the EMB rose 1.1% on Wednesday, reacting positively to inflation data.
Photo: Shutterstock
27% profits every 20 days?
This is Nic Chahine’s average with his options purchases. Do not sell calls or covered spreads… BUY options. Most traders don’t even have a 27% winning percentage when buying options. He has a win rate of 83%. Here’s how he does it.
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