What this chart shows
This week’s chart looks at how the Federal Reserve’s conclusion of a hiking cycle impacts US Treasuries. Historical data shows a consistent trend: the end of rate hikes tends to yield robust returns for US Treasuries, evident in their positive performance following the end of each tightening cycle over the last four decades. As the Fed approaches the end of its current tightening phase, marked by an unprecedented rate hike spree during 2022 and the beginning of 2023, investors may find themselves considering potential opportunities in bond markets. Despite uncertainties surrounding the exact timing of the Fed’s rate peak, both market sentiment and Fed projections align in expecting a decline in the central bank’s policy rate by the end of 2024.
Why this is important
With US Treasury yields remaining elevated and the Federal Reserve signalling a pause in its aggressive monetary policy tightening, investors are presented with a window of opportunity. Bonds, which faced headwinds in 2022 due to rising interest rates, could stand to benefit as the prospect of rate cuts looms. Given ongoing uncertainties regarding the pace of inflation decline and the Fed's response, there’s attention on the historical performance of US Treasuries following the conclusion of Fed hiking cycles. However, economic resilience may translate into a period of higher-for-even-longer rates as policymakers cautiously monitor the impact of their tightening measures and last week’s Federal Open Market Committee (FOMC) meeting has tempered expectations of further rate increases. Despite this, US Treasuries can serve as a safe haven amidst elevated US equity valuations and lingering uncertainty about the pace of economic slowdown. Therefore, fixed income retains its traditional role of providing income and diversification in portfolios, even in a shifting economic landscape.
Chat of the Week - 21 Sep
This chart shows the amount raised in the top ten Initial Public Offerings (IPOs) in the US over the past five years and the share price performance since the date of their listing.
Source: Momentum Global Investment Management, Bloomberg Finance L.P. Data to 19 September 2023.
Chat of the Week - 19 Sep
This chart shows the difference in 30-day volatility between the iShares 20+ Year Treasury Bond ETF (Exchange Traded Fund) and the SPDR S&P 500 Trust ETF. ETFs are funds traded on stock exchanges and typically hold a range of holdings in a specific asset class with the aim of tracking their overall price movements.
Source: Momentum Global Investment Management, Bloomberg L.P. Data to 17 October 2023.