uploads///SPDR Barclays Capital High Yield Bond ETF JNK

FOMC Statement Moves Financial Markets


Dec. 4 2020, Updated 10:53 a.m. ET

Market activity

US equity and fixed income markets were clued-in on the FOMC’s (Federal Open Market Committee) statement for pointers in the week ended March 20. A rally after the statement and again on March 20 led the NASDAQ Composite Index to its highest closing in 15 years and a shade below its all-time closing high of 5,048.62 in March 2000.

The S&P 500 index rose in the week and ended above the 2,100 level. The S&P 500 index is tracked by the SPDR S&P 500 ETF (SPY) and the iShares Core S&P 500 ETF (IVV). Meanwhile, the Dow Jones Industrial Average (or DJIA), tracked by the SPDR Dow Jones Industrial Average ETF (DIA), ended above the 18,000 level.

Apple (AAPL) entered the DJIA on March 19 with a weightage of 4.7%. Goldman Sachs (GS) became the security with the highest weightage in the index after Visa (V) affected a stock split in the week.

A drop of the word “patience” in the FOMC’s forward guidance on monetary policy did open up the possibility of a rate hike in June 2015. However, equities took comfort from the overall dovish tone of the statement.

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Economic projections by FOMC participants showed a downbeat view of economic growth and the PCE (personal consumption expenditures) price index going forward. You can read more about the FOMC meeting outcome and implications in our series The Fed’s ‘Patience’ is Gone, but Will Things Change from Here?

Treasuries rise

U.S. Treasury prices jumped on the continuing accommodative stance of the U.S. Federal Reserve. Weak domestic economic data such as the fall in housing starts also helped Treasuries rise.

The seven-year, ten-year, and 30-year securities saw yields falling by 20 bps (basis points) each over the week. The iShares Barclays 20+ Year Treasury Bond Fund (TLT) rose 3.8% for the week, following a 2.6% rise in the previous week.

Volatility tanked in the week. The iPath S&P 500 VIX Short Term Futures ETN (VXX), which tracks volatility, fell 8.4% for the week after having risen by 0.25% in the previous week.

Junk bonds

Along with Treasuries and investment-grade bonds, junk bond prices also rose in the week. Due to this rise, junk bonds and related ETFs such as the SPDR Barclays Capital High Yield Bond ETF (JNK) and the iShares iBoxx $ High Yield Corporate Bond Fund (HYG) rose in the week ended March 20.

This series will cover the impact of the above on the primary and secondary markets for high-yield debt and leveraged loans.


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