TLT Investors Brace for Fed Meeting and Jobs Report

TLT Investors Brace for Fed Meeting and Jobs Report

Two big events this week could drive the highly popular bond ETF.

sumit
|
Senior ETF Analyst
|
Reviewed by: etf.com Staff
,
Edited by: Kent Thune

Don’t expect a rate hike when the FOMC makes its latest monetary policy decision this week. The Fed is expected to hold the benchmark federal funds rate between 5.25% and 5.00% when it concludes its two-day meeting on Wednesday.

If the Fed stays pat, it will mark the second-straight meeting in which the central bank held the line on rates.  

But investors still aren’t completely convinced that the Fed’s job is done. The probability based on the pricing of Fed funds futures suggests that there is a 25% chance that the Fed will hike rates at its next meeting in December. 

This Friday’s jobs report could play a big part in shifting the rate hike probability. Employers are expected to have added 180,000 workers to their payrolls in October. 

A big miss could cement the idea that the Fed is done hiking rates, while a big beat could push the door to another hike wide open.  

Shifts in Fed rate hike expectations could in turn drive big moves in Treasury yields. The 10-year Treasury yield topped 5% for the first time in 16 years a week ago, partly on expectations about Fed monetary policy.

Treasury ETFs Hit by Yield Spike

ETFs like the iShares 7-10 Year Treasury Bond ETF (IEF), iShares 20+ Year Treasury Bond ETF (TLT) and the Vanguard Long-Term Treasury ETF (VGLT) have been hit on the yield spike, but investors keep betting on them anyway. 

The price of IEF is down 4% this year, while TLT and VGLT are down more than 12% on a year-to-date basis. Despite that, 2023 inflows for TLT topped $20 billion last week, while those for IEF and VGLT hit a combined $10 billion. 

This week’s Fed meeting and jobs report—and how they translate into Fed rate hike expectations— will likely play a big role in determining where those and other Treasury bond ETFs go from here.  

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.