U.S. Treasury exchange traded funds come front and center as investors await the highly anticipated Federal Reserve announcement, which is generally projected to end with the central bank raising rates by 75 basis points.
Wednesday’s Fed announcement could spark volatility in ETFs tied to Treasury prices. This group includes the iShares Core U.S. Aggregate Bond ETF ( NYSEARCA: AGG ), Vanguard Total Bond Market ETF ( NASDAQ: BND ), iShares 20+ Year Treasury Bond ETF ( NASDAQ: TLT ), iShares 3-7 Year Treasury Bond ETF ( NASDAQ: IEI ) and the iShares 7-10 Year Treasury Bond ETF ( IEF ).
Data has shown that during trading session when a rate increase is announced, Treasury yields can move erratically. During the previous 75-basis point hike on June 16 th , the U.S. 10-year Treasury yield ( US10Y ) was extremely volatile notching a daily range of 32-basis points. Moreover, the U.S. 2-year Treasury ( US2Y ) swung in a 31-basis point range.
In the bond market, yields and prices move in opposite directions. Therefore, any sudden swings in yields up or down will send immediate ripples to the underlying bond ETFs.
Year-to-date price action: AGG -8.7% , BND -9.2% , TLT -18.2% , IEI -6% , and IEF -8.5% .
Furthering the spotlight on Treasury ETFs is the fact that the yield curve between the 2-year and 10-year Treasury notes continues to invert.
For further details see:
Treasury ETFs in focus ahead of Fed rate hike announcement