MW Bond ETFs rally as investors weigh fresh signs of cooling inflation
By Christine Idzelis
'Shelter-related components finally witnessed a significant slowing in price growth,' says BlackRock's Rick Rieder, pointing to data from the consumer-price index
Shares of exchange-traded funds that invest in bonds were rising Thursday, as investors parsed details from a fresh report on U.S. inflation that indicated more signs of cooling.
Shares of the iShares Core U.S. Aggregate Bond ETF AGG were gaining 0.5%, while Treasurys broadly rallied, according to FactSet data, at last check. The Vanguard Long-Term Treasury ETF VGLT was up a sharp 1.1% Thursday afternoon.
The U.S. bond market was rallying after headline data from the consumer-price index on Thursday showed inflation fell in June for the first time since 2020 while its annual pace continued to ease. Investors are anticipating that softening inflation sets the Federal Reserve up to begin cutting interest rates as soon as September.
"Critically, shelter-related components finally witnessed a significant slowing in price growth," said Rick Rieder, BlackRock's chief investment officer of global fixed income and head of the firm's global allocation investment team, in an emailed note Thursday of the CPI inflation report for June.
"The appropriate conditions are unfolding for the Fed to begin reducing its very restrictive" federal-funds rate by a quarter percentage point, "likely starting in September," said Rieder.
The Bureau of Labor Statistics said Thursday that inflation, as measured by the consumer-price index, declined 0.1% in June, with the year-over-year rate slowing to 3%.
Looking at the CPI report for June, Rieder said that "declines in energy components" and used cars and trucks were "offset by gains in recreation goods and other select services prices."
Core inflation, which excludes energy and food prices, increased 0.1% in June for an annual rate of 3.3%, according to the Bureau of Labor Statistics report.
The report was softer than Wall Street anticipated, with Treasury bond yields dropping after its release Thursday morning.
In afternoon trading, the yield on the 10-year Treasury note BX:TMUBMUSD10Y was down about 9 basis points at around 4.20%, FactSet data show, at last check. The 2-year Treasury yield BX:TMUBMUSD02Y was sliding 12 basis points Thursday afternoon, to around 4.51%.
Fed Chair Jerome Powell earlier this week "delivered testimony before Congress that underscored the progress that's been made in both bringing labor markets into better balance after the severe pandemic-era disruptions, and improvements achieved in taming the high inflation rates of that period as well," said Rieder.
Hiring in the U.S. has slowed, with Powell's testimony suggesting "that the moderation we're witnessing in what had been an overheated labor market brings the balance of risks for policy into closer alignment," Rieder wrote. "We think that the Federal Reserve should be pleased by a more normal (and no longer overheating) jobs picture."
Shares of the BlackRock Flexible Income ETF BINC, an active bond fund run by Rieder, was up 0.3% Thursday afternoon, according to FactSet data, at last check.
So far this year, the BlackRock Flexible Income ETF has posted a total return of 2.8%. That exceeds the total 0.7% return for the passive index-tracking iShares Core U.S. Aggregate Bond ETF so far in 2024, as of Thursday afternoon.
-Christine Idzelis
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(END) Dow Jones Newswires
July 11, 2024 15:11 ET (19:11 GMT)
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