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FOMC Indicates June Hike in Play, Gold and U.S. Treasury Securities in Focus

 

June 27, 2017 (Investorideas.com Newswire) In late May 2017, the Federal Open Market Committee released its minutes for the May 2017 meeting. One of the key takeaways from those minutes were that the Federal Reserve may be keeping the odds a June rate hike high. In the Fed's two-day meeting on May 2-3, 2017, the FOMC moved to leave the target rate range unchanged at 0.75% to 1%.

Market participants are expecting the Fed to continue its rate hikes soon. Now, in the May 2017 meeting, market participants were already expecting the FOMC to leave its target rate range unchanged. The markets are also expecting a rate hike in the Fed's June 2017 meeting.

According to Investing.com, the market is placing nearly an 85% probability of a 25 basis point rate hike in the Federal Open Market Committee's next meeting. Now, there are some implications for the markets at the next Fed rate hike, and gold-related and U.S. Treasury-related exchange-traded funds (ETFs) should see some volatility heading into the June 2017 meeting.

Source: Investing.com

Trader Jason Bond stated, "When it comes to the Fed, they generally try not to spook the markets. So since the market is placing a relatively high probability, the FOMC will most likely look to raise rates. Consequently, this would affect exchange-traded funds (ETFs) that hold U.S. Treasury securities, such as the iShares 20+ Year Treasury Bond ETF."

With the Fed looking to raise rates, there are some exchange-traded funds that traders may want to focus on. These ETFs include: the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) and the SPDR Gold Trust (NYSEARCA: GLD).

The iShares 20+ Year Treasury Bond ETF is one security that many traders are watching and looking to trade after the FOMC meeting announcement in June. Now, the market is already looking for the FOMC to raise rates in its June 2017 meeting, consequently, traders may look be looking for TLT to sell off a bit after the announcement is made. However, the FOMC surprises the market and leaves rates unchanged, TLT could run higher. The iShares 20+ Year Treasury Bond ETF primarily holds U.S. Treasury bonds with remaining maturities greater than 20 years, and therefore, it may carry a higher degree of interest rate risk.

Moving on to gold-related ETFs. The SPDR Gold Trust comes to traders' minds when they're looking to gain exposure to gold prices. The SPDR Gold Trust seeks to provide performance corresponding to that of the price of gold bullion, minus the Trust's fees and expenses. Now, typically, gold has an inverse relationship to interest rates, but it could serve as a hedge against inflation. Consequently, if the Fed looks to continue its rate hikes in June, GLD could fall. However, if the Fed is more dovish and looks to leave rates unchanged, and wait for more economic data to be released before they make a decision, then GLD should rise.

With the FOMC meeting coming up, traders are looking for the FOMC to continue with its interest rate hikes. However, anything could happen between now and the, and there could be unfavorable economic data that may cause the Federal Open Market Committee to leave rates unchanged, again.

This article was contributed by JournalVoice.


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