Treasury yields pushed higher on Thursday morning after the Federal Reserve hiked rates by 75 basis points and reiterated a hawkish undertone. As a result, exchange traded funds that are tied to the movements of Treasury yields have been under fire in the early going.
On Thursday, the spread between the U.S. 10-year Treasury yield ( US10Y ) and the U.S. 2-year Treasury yield ( US2Y ) touched -53 basis points, just shy of the earlier month level of -55 basis points.
The yield curve inversion has historically acted as a predictor of future recessions. The term refers to a situation where shorter-term bonds have a higher yield than longer-term ones.
Currently, the yield curve is hovering near its widest negative spread in more than 22 years, dating back to June of 2000. On Thursday, the 2-year Treasury yield is up 13 basis points to 4.70% and the 10-year yield is up 10 basis points 4.15%.
As yields rise and the yield curve inverts, Treasury ETFs come into focus. The rising yields point to a decline in bond funds, as higher yields are linked to lower prices for those same debt instruments.
Therefore, funds such as the Vanguard Total Bond Market ETF ( NASDAQ: BND ) and the iShares Core U.S. Aggregate Bond ETF ( NYSEARCA: AGG ), with their combined $156.19B assets under management, traded lower on Thursday morning. Early on, both BND and AGG are lower by 0.6% .
Aside from BND and AGG, a handful of other Treasury based exchange traded funds that are in the red as well. These include: ( NASDAQ: TLT ), ( NASDAQ: IEI ), ( IEF ), ( SHY ), ( GOVT ), ( VGSH ), ( VGIT ), ( SCHO ), ( SCHR ), ( SPTL ), ( TLH ), and ( VGLT ).
Moreover, in broader market news major averages started off the session in negative territory after the late selloff in the previous session on Fed chief Jay Powell signaling a higher terminal rate with smaller hikes.
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Treasury ETFs are under fire as yields jump following Fed announcement