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Investment-Grade Bond Yields Rose: Possible Rate Hike in December

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Investment-grade bond yields

Investment-grade bond yields rose in the week ending October 30. At the FOMC (Federal Open Market Committee) meeting, there was a hawkish tone on the rate hike in December. In 3Q15, the US GDP (gross domestic product) data indicated that the US economy expanded. This also supported a liftoff.

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FOMC meeting

The Fed kept interest rates unchanged after the conclusion of the two-day FOMC policy meeting on October 28, 2015. However, the meeting indicated the possibility of a rate hike in its next meeting. The next meeting is scheduled for December 15–16, 2015. The investment-grade bond yields rose after the announcement.

GDP and personal consumption data

The GDP grew by 1.5% in the third quarter. This indicated expansion in the US economy. Personal consumption rose by 3.2% in 3Q15. Investment-grade bond yields rose after the release of the GDP and personal consumption data on October 29.

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Other US economic indicators

Investment-grade bond yields fell after the release of the durable goods orders and consumer confidence data on October 27. Durable goods orders fell 1.2% in September. US consumer confidence fell to 97.6 in October from a revised reading of 102.6 from 103.0 in September.

Yield movement

Corporate bond yields, as seen by the BofA Merrill Lynch US Corporate Master Effective Yield, ended at 3.4% on October 30—six basis points higher than the previous week.

The Vanguard Total Bond Market Index Fund – Investor Class (VBMFX) provides broad exposure to US investment-grade bonds. VBMFX invests in investment-grade corporate bonds of companies like Apple (AAPL), Walmart (WMT), Bank of America (BAC), AT&T (T), and Oracle (ORCL).

Due to the rise in yields, VBMFX’s weekly return fell by 0.34%.

In this series, we’ll look at investment-grade corporate debt issuances for the week ending October 30 in detail. First, let’s look at how yields on corporate bonds have fared, so far, in 2015.

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