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Are Interest Rates Finally Creeping Higher Again?

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The bond markets could be seeing higher yields again with Treasury notes giving way to slight upticks as of late, according to a CNBC article. Fixed income investors who have been mired in a low yield environment for months could finally be rejoicing.

“After trading in a close range since June, Treasury yields are starting to break out of their range and look set to edge higher,” the article said. “The 10-year yield reached a high of 0.834% early Wednesday morning and was hovering just at the 0.80% level in afternoon trading.”

“This is an inflection point in the sense that stimulus is coming. It’s not if, it’s when, and we’re getting closer to the point of I think no matter who wins the presidency you’re going to get fiscal stimulus,” said Jim Caron, head of global macro strategies at Morgan Stanley Investment Management. “It’s just a matter of how much and what the process is.”

The article also mentioned that: “Markets have been on edge waiting for a resolution in talks between Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi. Even if the two reach an agreement on a stimulus package, strategists say it’s still seems a stretch for Senate Republicans to approve it ahead of the election, though the bond market has been moving in anticipation of it.”

“The benchmark 10-year note yield is widely-watched, and it influences key interest rates for mortgages and other loans,” the article added. “The yield was virtually stuck under 0.70% for most of September and into October, but it has been trading above that level and now has inched up to 0.80%.”

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One ETF that Could Benefit

With rates on the move, borrowed money could get more expensive, benefiting mortgage-focused funds like the VanEck Vectors Mortgage REIT Income ETF (MORT). The fund seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® US Mortgage REITs Index.

The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index. The Mortgage REITs Index may include small-, medium- and large-capitalization companies.

  • High Dividend Yield Potential: In recent years, yields from mortgage REITs have been higher than those of equity REITs and many income-oriented securities
  • Pure Mortgage REIT Exposure: Tracks an index that offers pure play exposure to mortgage REITs
  • Industry in Transition: Mortgage REITs may potentially stand to benefit from the evolving mortgage finance market but are sensitive to interest rate and regulatory changes

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