Floating Rate ETFs Set To Surge On Rate Hike Bets

Historical Stock, Securities, Certificates, Fund, Bonds

After being dovish in the last few years, the Federal Reserve has hinted at the prospect of rising rates in two years. In the latest FOMC meeting, it has kept interest rates near zero but surprisingly raised the chances of two rate hikes by the end of 2023, sooner than the previously projected 2024, amid forecast for faster economic growth and inflation.

The central bank expects inflation to run hot this year to 3.4%, well above the goal of 2%, before receding to 2.1% in 2022. It also raised GDP growth from 6.5% to 7% for this year, the fastest calendar-year expansion since 1984. The unemployment rate remained unchanged at 4.5% as the labor market is still healing from the depths of the pandemic and has yet to recover 7 million jobs.

Economic activity and employment have strengthened as rapid vaccination has reduced the spread of COVID-19 in the United States. Inflation has risen, and consumer confidence has picked up along with spending. In anticipation of this, interest rates have already moved up sharply in recent months. Now, the Fed’s hawkish view has resulted in a further rise in yields. The 10-year U.S. Treasury yields saw their biggest rise since early March while 2-year yields jumped to the highest level in a year following the Fed’s comment.

That said, investors seeking to prepare for higher rates could flock to the bonds with yields that track broader interest rates – floating rate bonds.

Why Floating Rate Bonds?

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