After days of losses, markets opened in the green after Fed Chair Jerome Powell reiterated that the Fed was at its “peak” in its tightening cycle.
“If the economy evolves broadly as we expect, most FOMC participants see it as likely to be appropriate to begin lowering the policy rate at some point this year,” Powell stated Wednesday. After spiking on fears that rate cuts weren’t coming anytime soon, bond yields slipped early Thursday after Powell’s comments.
TLT, the iShares 20+ Year Treasury Bond ETF jumped Thursday but at $92.50, is still trading near its lows for the year. According to data available on etf.com, fund flows for TLT have been on a rollercoaster ride since the start of the year as investors have questioned the future path of rate cuts from the Fed.
TLT flows YTD:
Source: etf.com
Bond ETFs are notoriously sensitive to interest rate moves and “higher for longer” interest rates have provided a buying opportunity for investors. Since bond prices have an inverse relationship with yields, higher rates have kept yields high and prices low.
Investors will still have to wait a few more months before it becomes clear when the Fed will begin to cut rates. After Powell’s comments, probability of a June rate cut jumped to 61%, according to the CME Fed Watch Tool.
Elsewhere in markets, weekly jobless claims (or people filing for unemployment for the first time) increased to 221,000 for the last week in March, the Labor Department reported today. That’s more than economists had originally forecast. The numbers are the last bit of employment data investors will receive before nonfarm payrolls are released by the Bureau of Labor Statistics on Friday.
Investors have been watching the employment situation as the jobs market serves as a proxy for economic strength by the Fed. Higher levels of unemployment and a weakening labor market could provide hopes that the Fed will cut rates sooner than later to help stimulate the economy.
And the aftermath of the Taiwanese earthquake still continues to hit SOXS, the Direxion Daily Semiconductor Bear 3X Shares. Taiwan remains the global capital of semiconductor manufacturing, accounting for 60% of all chips production. According to etf.com data, SOXS is the most active ETF so far today, with a trading volume topping 32 million.
The fund, which bets on falling prices of semiconductor industry stocks, is down more than 2.6% so far in the trading day.
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