Let's Stop With The Rate Hike Talk Already

seekingalpha05-09

Coming into this year, it’s safe to say that all the attention within the money and bond markets was on Federal Reserve rate cuts.If the whole rate hike narrative hadn’t been re-introduced, the focus ...

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Conclusion The bottom line is that “higher for longer” remains a dominant them","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"USFR":"WisdomTree Bloomberg Floating Rate Treasury Fund","LU0320765646.SGD":"FTIF - Franklin Income A MDIS SGD-H1","LU1363072403.SGD":"Fidelity Global Financial Services A-ACC-SGD","IE00BZ1G4Q59.USD":"LEGG MASON CLEARBRIDGE US EQUITY SUSTAINABILITY LEADER \"A\"(USD) INC (A)","BK4581":"高盛持仓","LU0106831901.USD":"贝莱德世界金融基金A2","BK4504":"桥水持仓","USSH":"WisdomTree 1-3 Year Laddered Treasury Fund","BK4127":"投资银行业与经纪业","UST":"ProShares Ultra 7-10 Year Treasu","USIN":"WisdomTree 7-10 Year Laddered Treasury Fund","LU0971096721.USD":"富达环球金融服务 A","LU1074936037.SGD":"JPMorgan Funds - US Value A (acc) SGD","IE00BKVL7J92.USD":"Legg Mason ClearBridge - US Equity Sustainability Leaders A Acc USD","LU1668664300.SGD":"Blackrock World Financials A2 SGD-H","BK4585":"ETF&股票定投概念","BK4534":"瑞士信贷持仓","LU0098860793.USD":"FRANKLIN INCOME \"A\" INC","LU1989772840.SGD":"CPR Invest - Climate Action A2 Acc SGD-H","LU1989772923.USD":"CPR Invest - Climate Action A2 Acc USD-H","LU1162221912.USD":"FRANKLIN INCOME \"A\" (USD) ACC","BK4588":"碎股"},"translate_title":"让我们停止谈论加息","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"UST":1,"USSH":1,"USIN":1,"USFR":1,"US12M.BOND":0.9,"US7Y.BOND":0.9,"US6M.BOND":0.9,"US5Y.BOND":0.9,"US3Y.BOND":0.9,"US30Y.BOND":0.9,"US2Y.BOND":0.9,"US10Y.BOND":0.9,"US912797HH31.BOND":0.6,"US912797HE00.BOND":0.6,"US912797GW17.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GK78.BOND":0.6,"US912797GB79.BOND":0.6,"US912797FS14.BOND":0.6,"US912797FH58.BOND":0.6},"content_text":"Coming into this year, it’s safe to say that all the attention within the money and bond markets was on Federal Reserve rate cuts.If the whole rate hike narrative hadn’t been re-introduced, the focus probably would have been on the Fed chair’s statement that gaining confidence to cut rates will take longer than originally thought.Although the employment data did not meet consensus forecasts, it still revealed a relatively solid labor market setting.   wildpixel By Kevin Flanagan Coming into this year, it’s safe to say that all the attention within the money and bond markets was on Federal Reserve rate cuts. It wasn’t a question of “if,” but “when” and by “how much.” Well, we all know now how that narrative has turned out thus far. In fact, just within the last few weeks the whole rate cut discussion was turned completely around, as - believe it or not - the Treasury (UST) arena was actually contemplating the exact opposite…could the Fed give us a renewed rate hike. So, how did we go from point A (rate cuts) to essentially point Z (a rate hike)? Certainly, the economic data released in April was a starting point, specifically on the inflation side of the equation. CPI and PPI both came in hotter than expected, basically halting the disinflation trend that had been prevalent in 2023. In addition, labor market data revealed new momentum in job growth, and consumer spending, as measured by retail sales, was also solid. However, the final piece of the puzzle seems to have been a comment from N.Y. Fed President Williams, considered to be one of the Fed’s three official spokespersons. While he said that a rate hike “is not my baseline,” he did say it is possible if the data warrants such a move. Needless to say, the UST market did not greet this headline favorably. Indeed, the UST 2-Year yield hit a pre-May FOMC meeting peak of 5.04%, the highest reading since November. Meanwhile, the UST 10-Year yield rose to 4.74% on an intraday basis, to reach its most elevated level since October. In other words, the incredible UST rally during Q4 was getting closer to being reversed entirely. Why is this so important? Because it explains why the UST market reacted in such a positive fashion to the results of the May FOMC meeting, the Powell presser and then the April jobs report that followed a couple days later. Without this context, the May Fed-day probably would have been viewed as being neutral with a case for perhaps a hawkish spin on the Powell presser. Instead, the money and markets focused on Powell’s downplaying the chance of a renewed rate hike. If the whole rate hike narrative hadn’t been re-introduced, the focus probably would have been on the Fed chair’s statement that gaining confidence to cut rates will take longer than originally thought. Additionally, although the employment data did not meet consensus forecasts, it still revealed a relatively solid labor market setting. Conclusion The bottom line is that “higher for longer” remains a dominant theme for the U.S. bond market. Against this backdrop, we believe investors should consider turning to the WisdomTree suite of Treasury Funds as a toolkit to position their fixed income portfolios for both the current and prospective rate outlooks:  The WisdomTree Floating Rate Treasury Fund (USFR)  As well as our two new Treasury laddered Funds: The WisdomTree 1-3 Year Laddered Treasury Fund (USSH)   The WisdomTree 7-10 Year Laddered Treasury Fund (USIN)   Important Risks Related to this Article There are risks associated with investing, including the possible loss of principal. Please read the Funds’ prospectus for specific details regarding the Funds’ risk profiles. USFR: Securities with floating rates can be less sensitive to interest rate changes than securities with fixed interest rates, but may decline in value. Fixed income securities will normally decline in value as interest rates rise. The value of an investment in the Fund may change quickly and without warning in response to issuer or counterparty defaults and changes in the credit ratings of the Fund’s portfolio investments. Due to the investment strategy of this Fund it may make higher capital gain distributions than other ETFs. USSH & USIN: Because the Funds are new, they have no performance history. U.S. Treasury obligations may provide relatively lower returns than those of other securities. Changes to the financial condition or credit rating of the U.S. government may cause the value to decline. Fixed income securities are subject to interest rate, credit, inflation and reinvestment risks. Generally, as interest rates rise, the value of fixed income securities falls.    Kevin Flanagan, Head of Fixed Income Strategy As part of WisdomTree’s Investment Strategy group, Kevin serves as Head of Fixed Income Strategy. In this role, he contributes to the asset allocation team, writes fixed income-related content and travels with the sales team, conducting client-facing meetings and providing expertise on WisdomTree’s existing and future bond ETFs. In addition, Kevin works closely with the fixed income team. Prior to joining WisdomTree, Kevin spent 30 years at Morgan Stanley, where he was Managing Director and Chief Fixed Income Strategist for Wealth Management. He was responsible for tactical and strategic recommendations and created asset allocation models for fixed income securities. He was a contributor to the Morgan Stanley Wealth Management Global Investment Committee, primary author of Morgan Stanley Wealth Management’s monthly and weekly fixed income publications, and collaborated with the firm’s Research and Consulting Group Divisions to build ETF and fund manager asset allocation models. Kevin has an MBA from Pace University’s Lubin Graduate School of Business, and a B.S in Finance from Fairfield University.  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