FOMC minutes impact yields
The FOMC (Federal Open Market Committee) is the interest rate setting committee of the US Federal Reserve. It met on March 17–18, in a scheduled meeting, to decide on the course of monetary policy. The meeting minutes were released on April 8. You can read more about the minutes in Federal Reserve’s March 2015 Meeting Minutes Show a House Divided and US Federal Reserve: What the March 2015 Division Means for Investors.
The minutes showed that policymakers were divided regarding June being the appropriate time to hike interest rates. These divided opinions led to a fall in Treasury prices. A rate hike could potentially raise interest rates prevailing in the financial system. As a result, this can raise yields and depress prices. This would hurt investors in ETFs like the iShares Barclays 20+ Year Treasury Bond Fund (TLT), the iShares Barclays 7-10 Year Treasury Bond Fund (IEF), and the iShares Barclays 1-3 Year Treasury Bond Fund (SHY). They invest in US Treasuries of different maturities.
Treasury yields were also pushed higher due to lackluster demand at Treasury bonds and Treasury notes auctions last week. This also pushed up investment-grade corporate bond yields.
Economic releases were thin. Only weekly initial jobless claims and import prices had an impact on bond yields.
Corporate bond yields barely moved in the first half of the week. They weren’t responsive to the FOMC minutes—released on April 8. On that day, the BofA Merrill Lynch US Corporate Master Effective Yield didn’t move from its previous closing. However, the corporate bond yields did nudge up the following day. They closed the week at that level.
ETFs like the iShares iBoxx $ Investment Grade Corporate Bond Fund (LQD) invest in investment-grade corporate debt issues. Debt issued by companies like Verizon (VZ), Goldman Sachs (GS), and General Electric (GE) are among LQD’s major holdings.
In this series we’ll look at investment-grade corporate debt issuances for the week ending April 10 in more detail. First, let’s take a look at how yields on corporate bonds fared in 2015, so far.