Slight changes in the recent Fed statement on interest rate policy may indicate a higher Fed funds rate in the not too distance future. Brian Wesbury and Bob Stein at First Trust Advisors do an excellent job at summarizing the changes in the Fed statement and the potential implications. Read their comments here
Additionally, let us not mistake that even a relatively large hike in fed funds, say 100 bps, would still keep rates within Bernanke’s “exceptionally low levels”.
Except for the doomsdayers in the Japanese-esque deflation camp, most would agree on expectations for higher rates at some point in the future. The yield curve is clearly agreeing, as we pointed out in our recent post, Playing the Yield Gap.
We thought it would be appropriate to identify some ETFs & CEFs that may do well as shorter rates increase.
Senior Loan Funds
As spreads increase in parallel to Libor rates, Senior Loan funds may raise their dividend yields.
As companies take advantage of cheap financing and select capital access, look for M&A activity to heat up.
Currency and Commodity
The weak dollar trade has been over crowded for some time. It could cause a rush for the exits because of an increase in carrying costs
If rates, either short or long accelerate higher, complacency in volatility could come to a end, quickly.