Exchange-traded funds that invest in Treasury bonds fell after the May inflation report, as the market anticipated the Federal Reserve may continue hiking...
Exchange-traded funds that invest in Treasury bonds fell Tuesday after the May inflation report, as the market anticipated the Federal Reserve may continue hiking interest rates after a June pause.
A report from the Bureau of Labor Statistics on Tuesday showed that inflation eased in May, softening in line with expectations from economists polled by the Wall Street Journal. Traders in the federal-funds futures market see a 93% chance the Fed will on Wednesday announce a pause in its rate increases, which have been aimed at battling high inflation, according to data from the CME FedWatch Tool on Tuesday afternoon.
The Fed’s messaging risks remaining “hawkish,” with investors concerned that a pause may be “a skip” in rate hikes, Silapachai said. That would mean another rate increase may be on the horizon as the central bank continues its effort to bring down inflation in a “pretty resilient” economy, he said.Bonds were largely hammered with losses last year as the Fed fought high inflation with rapid rate increases aimed at cooling demand in the U.S. economy.
So far in 2023, bond ETFs with longer-dated Treasury bonds have larger returns than funds buying shorter-duration Treasury notes.
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