The Federal Open Market Committee delivered on its highly anticipated rate hike at its September meeting. The Federal Reserve raised rates three times this year and has entered its final phase of the balance sheet normalization. Where do we think the Fed could be headed for the final three months of this year and into 2019?
Just shy of three years ago, we launched the WisdomTree Barclays Yield Enhanced U.S. Aggregate Bond Fund, which seeks to track the yield and performance of the Bloomberg Barclays U.S. Aggregate Enhanced Yield Index. As interest rates started to rise in 2016, investors have questioned whether a strategy that is one year longer in duration than the benchmark is prudent. As we highlight below, we believe our approach continues to deliver value in the core of investor bond portfolios.
On March 21, the Federal Open Market Committee voted to increase the Federal Funds Rate target for the sixth time since December 2015. We highlight the rationale for our highest-conviction fixed income trade over the next two years and why investors should be investing in floating rate Treasuries instead of three-month t-bills.
As expected, the Federal Reserve delivered its first rate increase of the year. Unlike last year’s March rate hike, this latest tightening move by the Fed was widely anticipated. In fact, the money and bond markets are definitely operating under a different mind-set in 2018, assuming the policy makers have just begun this year’s rate hike moves.
Last week the Dow Jones Industrial Average oscillated within a 2,500-point range. In a typical correction, market sell-offs can take weeks or months to unfold. But in today’s environment, corrections can be completed in a matter of hours. What caused the sell-off, and what does it mean for potential returns going forward?