The Federal Reserve meets during the first week of November to decide whether or not to increase interest rates. The probability of a rate hike in November stands at only 8.8% while increasing to 63.3% at the December meeting. With the elevated likelihood of an interest rate hike before year end, income focused investments, both fixed income and bond-like equities, are adjusting to this potential outcome.
As can be seen in the above chart, over the last three months, the yield on the 10-Year Treasury has increased over 30 basis points while a few selected income focused ETFs are down five percent or more, with REITs (iShares US Real Estate (NYSE:IYR)) down 10%.
The same return outcome is occurring with some fixed income investments. As the below chart also shows, bond investments are adjusting to a potentially higher interest rate environment as well. Longer term bonds, as represented by the iShares 20+ Year Treasury ETF (iShares 20+ Year Treasury Bond (NASDAQ:TLT)), have fared worse than bonds of a shorter maturity and is down over 7%.
A Fed rate increase before year end is not a certainty; however, with market rates adjusting to a higher level, bond like equities and longer term bonds remain under pressure.