NEW YORK ( ETF Expert) -- In the last eight weeks, bond traders have seemingly been willing to “fight the Fed.” The 10-year yield has crept up 50 basis since the start of February to 2.27%. What’s more, you don’t have to look very far to find an analyst willing to declare an end to the love affair that investors have had with U.S. government bonds.
Perhaps ironically, the boldness of Wall Street bond traders may have been ignited by better-than-expected employment data. And, intuitively, one might think that an improving labor market would be good for the U.S. economy and for U.S. stocks.
So why, on March 26, did Fed Chairman Ben Bernanke express doubt on the viability of a continuation in employment gains? And why would such negativity encourage the stock market to surge, striking multi-year highs?
Consider Bernanke’s speech to the National Association for Business Economics. He said, “While the labor market may lead to a self-sustaining recovery, we have not seen that in a persuasive way yet." In essence, the chairman wants to provide ongoing stimulation (e.g., ultra-accommodative rates, Treasury bond purchasing with electronic money printing, etc.) because he believes it is the answer for helping an economy that is not capable of sustaining itself.Naturally, if the head of the most powerful central bank in the world says that it will continue buying bonds with electronically created money that didn’t exist prior to quantitative easing, that fiat currency may not be worth as much as it was before. Not surprisingly, gold moved markedly higher. And most currencies that trade internationally strengthened against the greenback. It’s important to note, Bernanke probably needed to reassert his intentions. If you look at the one-month losses in Treasuries and the one-month losses in foreign currencies, it was as if people were beginning to bank on a self-sustaining U.S. economy. At least for a day, though, the chairman made sure that the U.S. dollar didn’t get ahead of itself. Indeed, it may make sense to avoid investing in a manner inconsistent with the Federal Reserve’s goal. On the other hand, Europe’s economic contraction and ongoing austerity will make it hard for currency ETFs to make appreciable progress against the U.S. dollar. That said, if you believe that the Australian dollar can hold its ground over the course of 12 months, Currency Shares Australian Dollar (FXA) may reward you with a 3.5% to 4.0% annualized payout. That’s still better than the U.S. 10-year Treasury.
|1-Day and 1-Month Returns For Popular Currency ETFs|
|Approx. 1-Day||Approx. 1-Month|
|CurrencyShares Swedish Krona (FXS)||1.1%||-1.6%|
|CurrencyShares Euro Trust (FXE)||0.7%||-0.8%|
|WisdomTree Emerging Currency (CEW)||0.6%||-0.8%|
|PowerShares DB Currency Harvest Fund (DBV)||0.6%||-0.9%|
|CurrencyShares Australian Dollar (FXA)||0.6%||-1.1%|
|WisdomTree Indian Rupee (ICN)||0.6%||-3.1%|
|WisdomTree Brazilian Real (BZF)||0.1%||-4.4%|
|CurrencyShares Japanese Yen Trust (FXY)||-0.5%||-2.2%|
|PowerShares Dollar Bullish (UUP)||-0.6%||0.4%|
You can listen to the ETF Expert Radio Show "LIVE", via podcast or on your iPod. You can follow me on Twitter @ETFexpert.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV