Popular exchange-traded funds that buy bonds fell and then struggled to recover earlier gains on Wednesday, after the Federal Reserve announced that it paused its interest-rate hikes but also released projections pointing to two more potential increases this year.
Shares of the Vanguard Total Bond Market ETF
BND,
which provides broad exposure to U.S. dollar-denominated, investment-grade debt, slid after the Fed released its statement at 2 p.m. Eastern Time, before eking out a 0.1% gain on Wednesday, according to FactSet data. The iShares Core U.S. Aggregate Bond ETF
AGG,
similarly fell before struggling for direction in afternoon trading and closing slightly higher.
Although the Fed paused its aggressive series of rate hikes begun in March 2022 to battle high inflation, the central bank sent a hawkish message in its projections for the fed-funds rate in 2023. The Fed’s summary of economic projections showed that officials’ median forecast for its benchmark rate could rise to 5.6% this year. That implies potentially two more rate hikes.
For now, the Fed’s benchmark rate remains unchanged in a targeted range of 5% to 5.25%.
“Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy,” according to the Fed’s statement from the Federal Open Market Committee. “In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
Treasury-focused ETFs were mixed after the Fed released its policy statement, after rising earlier in the session.
Shares of the iShares 7-10 Year Treasury Bond ETF
IEF,
closed 0.1% higher Wednesday, while the iShares 3-7 Year Treasury Bond ETF
IEI,
dipped less than 0.1% and the iShares 1-3 Year Treasury Bond ETF
SHY,
fell 0.1%, FactSet data show.
Meanwhile, the yield on the two-year Treasury note
TMUBMUSD02Y,
rose to 4.707% on Wednesday, the highest level since March 9 based on 3 p.m. Eastern Time levels, according to Dow Jones Market Data. Ten-year Treasury yields
TMUBMUSD10Y,
fell 4.2 basis points on Wednesday to 3.796%.
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