Bond ETFs Rise on Plunging Consumer Confidence
Inflation is no match for falling consumer confidence, as evidenced by this week's falling Treasury yields and rising bond ETF prices.
The latest reading of the Conference Board's Consumer Confidence Index notched 86 for April, reaching its lowest point since May 2020, when Covid-19 fears were peaking.
This downturn is largely attributed to escalating trade tensions and growing economic uncertainty, leading investors to seek safer assets and recession hedges, resulting in increased demand for long-duration Treasury ETFs.
For example, the iShares 20+ Year Treasury Bond ETF (TLT) is up about 4.5% in the past five trading days and the more rate-sensitive Vanguard Extended Duration Treasury Index Fund ETF (EDV) has risen nearly 7% in the same period.
These gains reflect falling Treasury yields, as markets anticipate potential Federal Reserve rate cuts in response to recession fears.
At the start of President Donald Trump's second term, many Americans were optimistic about economic growth, buoyed by promises of tax cuts and deregulation. However, the administration's aggressive tariff policies have since sparked widespread concern.
The imposition of sweeping tariffs on April 2, 2025, led to a significant stock market downturn, with the S&P 500 falling over 10% in two days in anticipation of higher inflation. Bond ETF prices followed stocks lower as inflation pushes up yields, which have an inverse relationship to prices.
Falling consumer confidence can itself precipitate a recession. As individuals cut back on spending due to economic uncertainty, businesses may reduce hiring or lay off workers, further dampening economic activity. The ongoing trade war exacerbates this cycle by increasing costs for businesses and consumers alike. Small businesses, in particular, are feeling the strain, with many reporting reduced demand and rising input costs.
The bond market reflects these concerns, with investors flocking to long-term Treasury securities, driving yields down and prices up, hence the gains for rate-sensitive Treasury bond ETFs like TLT and EDV. This trend indicates a market expectation of slowing economic growth and potential Federal Reserve intervention to stimulate the economy.
In summary, the combination of aggressive trade policies, inflation fears, and declining consumer confidence is creating a challenging economic environment in 2025. The situation underscores the interconnectedness of policy decisions, market reactions and public sentiment in shaping economic outcomes.Permalink | © Copyright 2025 etf.com. All rights reserved
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Wall Street Journal
22 minutes ago
- Wall Street Journal
There's New Evidence in the Case for Rate Cuts
Evidence is accumulating that inflation, despite tariffs, has been milder than feared, while the labor market might be deteriorating. The Federal Reserve doesn't have to act when it meets next week. But in their outlook and rhetoric, Fed officials need to acknowledge risks are shifting. Read more:
San Francisco Chronicle
23 minutes ago
- San Francisco Chronicle
Oil prices surge and markets retreat after Israel's strike on Iran
HONG KONG (AP) — Oil prices surged and Asian shares were lower Friday after Israel struck Iranian nuclear and military targets in an attack that raised the risk of all-out war between them. U.S. benchmark crude oil rose by $3.93, or 5.8%, to $71.97 per barrel. Brent crude, the international standard, increased by $3.82 to $73.18 per barrel. In share trading, Tokyo's Nikkei 225 fell 0.9% to 37,834.25 while the Kospi in Seoul edged 0.9% lower to 2,894.62. Hong Kong's Hang Seng retreated 0.9% to 23,831.48 and the Shanghai Composite Index lost 0.7% to 3,378.76. Australia's S&P/ASX 200 drifted 0.2% lower to 8,547.40. 'An Israeli attack on Iran poses a top ten of our global risk, but Asian markets are expected to recover quickly as they have relatively limited exposure to the conflict and growing ties to unaffected Saudi Arabia and the UAE,' said Xu Tiachen of The Economist Intelligence. On Thursday, U.S. stock indexes ticked higher following another encouraging update on inflation across the country. The S&P 500 rose 0.4% to 6,045.26. The Dow Jones Industrial Average added 0.2% to 42,967.62, and the Nasdaq composite gained 0.2% to 19,662.48. Oracle jumped 13.3% after reporting stronger profit and revenue for the latest quarter than analysts expected. That helped markets offset a 4.8% loss for Boeing after an Air India plane crashed Thursday, killing more than 240 people. It was the first crash of a Boeing 787 Dreamliner, and the cause wasn't immediately known. Stocks broadly got some help from easing Treasury yields in the bond market following the latest update on inflation. Thursday's update said inflation at the wholesale level wasn't as bad last month as economists expected, and it followed a report on Wednesday saying something similar about the inflation that U.S. consumers are feeling. Wall Street took it as a signal that the Federal Reserve will have more leeway to cut interest rates later this year in order to give the economy a boost. The Federal Reserve has been hesitant to lower interest rates, and it's been on hold this year after cutting at the end of last year, because it's waiting to see how much President Donald Trump's tariffs will hurt the economy and raise inflation. While lower rates can goose the economy by encouraging businesses and households to borrow, they can also accelerate inflation. The yield on the 10-year Treasury fell to 4.35% from 4.41% late Wednesday and from roughly 4.80% early this year. Besides the inflation data, a separate report on jobless claims also helped to weigh on Treasury yields. It said slightly more U.S. workers applied for unemployment benefits last week than economists expected, and the total number remained at the highest level in eight months. That could be an indication of a rise in layoffs. The Fed's next meeting on interest rates is scheduled for next week, but the nearly unanimous expectation on Wall Street is that it will stand pat again. Traders are betting it's likely to begin cutting in September, according to data from CME Group. Trump's on-and-off tariffs have raised worries about higher inflation and a possible recession, which had sent the S&P 500 roughly 20% below its record a couple months ago. But stocks have since rallied nearly all the way back on hopes that Trump will lower his tariffs after reaching trade deals with other countries. Many of Trump's tariffs are on hold at the moment to give time for negotiations, but Trump added to the uncertainty late Wednesday when he suggested the United States could send letters to other countries at some point 'saying this is the deal. You can take it or you can leave it.'
CNET
32 minutes ago
- CNET
Key Rates Move Higher for Homebuyers: Current Mortgage Rates for June 13, 2025
Check out CNET Money's weekly mortgage rate forecast for a more in-depth look at what's next for Fed rate cuts, labor data and inflation. Despite forecasts of gradually falling mortgage rates, the housing market remains largely unaffordable for most prospective buyers. The average 30-year fixed rate has remained close to 7% for the last seven months, leading to cost-prohibitive monthly payments. The average 30-year fixed mortgage interest rate is 6.87% today, up 0.02% from seven days ago. The average rate for a 15-year fixed mortgage is 6.04%, which is an increase of 0.01% compared to a week ago. Further compounding the financial pressure on borrowers are high home prices and the skyrocketing cost of ownership due insurance and property taxes. Median family income has not kept pace with the surge in housing costs, requiring many households to earn double or triple their salary to afford a modest home in some cities. Meanwhile, the "lock-in" effect, where current homeowners with low-rate mortgages are reluctant to sell and take on higher interest rates, has kept housing inventory tight and fueled price competition in high-demand areas. Despite the possibility of Federal Reserve interest rate cuts later this year due to an economic slowdown, the relief for homebuyers would likely be minimal. The looming threat of a job-loss recession is already prompting more households to cut back on spending take on less financial risk. When mortgage rates start to fall, be ready to take advantage. Experts recommend shopping around and comparing multiple offers to get the lowest rate. Enter your information here to get a custom quote from one of CNET's partner lenders. About these rates: Bankrate's tool features rates from partner lenders that you can use when comparing multiple mortgage rates. What should I know about mortgage rates today? The last few months have seen mortgage rates navigate a bumpy course. Persistent inflation, the looming threat of a global trade war and escalating recession fears have all contributed to an uncertain economic outlook. As a result, the Fed has adopted a wait-and-see approach when it comes to interest rate adjustments. After cutting borrowing costs three times last year, the central bank is keeping borrowing costs at their current range so far in 2025. Experts predict the Fed will hold rates steady again at its upcoming meeting on June 17-18. If President Trump eases some of his aggressive tariff measures or if the labor market deteriorates, it could prompt the Fed to resume easing interest rates in the fall, which would put downward pressure on bond yields and mortgage rates. Still, experts caution that significant market volatility is likely. As a result, homebuyers are adopting a more patient and strategic approach to financing, comparing various loan types and planning ahead. "Some are waiting, others are getting pre-approved now so they're ready to act if rates fall," said Jeb Smith, licensed real estate agent and member of CNET Money's expert review board. For a look at mortgage rate movement in recent years, see the chart below. Will mortgage rates fall in 2025? Despite hopes that 2025 would bring relief to the housing market, concerns over a potential recession and uncertain trade policies have kept longer-term bond yields and mortgage rates high. Mortgage rates primarily take their cues from the 10-year Treasury yield, which reflects investors' collective expectations regarding inflation, labor market health, upcoming monetary policy shifts and the impact of global factors like tariffs. If investors anticipate persistently high inflation or significant government borrowing, they'll demand higher returns on their bonds, which in turn keeps mortgage rates elevated. "Rates could fall if inflation keeps cooling and the labor market softens," said Smith. "On the other hand, tariffs could create new inflation pressure. Add in government deficits and increased bond supply, and that puts upward pressure on rates." In short, it will be difficult for mortgage rates to drop below 6% without the risk of a job-loss recession. Fannie Mae now expects rates around 6.1% by the end of 2025 and 5.8% by the end of 2026. According to Smith, mortgage rates could move lower slowly and steadily, but numerous risks could keep rates elevated. How can I choose a mortgage term? Each mortgage has a loan term, or payment schedule. The most common mortgage terms are 15 and 30 years, although 10-, 20- and 40-year mortgages also exist. With a fixed-rate mortgage, the interest rate is set for the duration of the loan, offering stability. With an adjustable-rate mortgage, the interest rate is only fixed for a certain amount of time (commonly five, seven or 10 years), after which the rate adjusts annually based on the market. Fixed-rate mortgages are a better option if you plan to live in a home in the long term, but adjustable-rate mortgages may offer lower interest rates upfront. 30-year fixed-rate mortgages The average 30-year fixed mortgage interest rate is 6.87% today. A 30-year fixed mortgage is the most common loan term. It will often have a higher interest rate than a 15-year mortgage, but you'll have a lower monthly payment. 15-year fixed-rate mortgages Today, the average rate for a 15-year, fixed mortgage is 6.04%. Though you'll have a bigger monthly payment than a 30-year fixed mortgage, a 15-year loan usually comes with a lower interest rate, allowing you to pay less interest in the long run and pay off your mortgage sooner. 5/1 adjustable-rate mortgages A 5/1 adjustable-rate mortgage has an average rate of 6.26% today. You'll typically get a lower introductory interest rate with a 5/1 ARM in the first five years of the mortgage. But you could pay more after that period, depending on how the rate adjusts annually. If you plan to sell or refinance your house within five years, an ARM could be a good option. Calculate your monthly mortgage payment Getting a mortgage should always depend on your financial situation and long-term goals. The most important thing is to make a budget and try to stay within your means. CNET's mortgage calculator below can help homebuyers prepare for monthly mortgage payments. How can I find the best mortgage rates? Though mortgage rates and home prices are high, the housing market won't be unaffordable forever. It's always a good time to save for a down payment and improve your credit score to help you secure a competitive mortgage rate when the time is right. Save for a bigger down payment: Though a 20% down payment isn't required, a larger upfront payment means taking out a smaller mortgage, which will help you save in interest. Boost your credit score: You can qualify for a conventional mortgage with a 620 credit score, but a higher score of at least 740 will get you better rates. Pay off debt: Experts recommend a debt-to-income ratio of 36% or less to help you qualify for the best rates. Not carrying other debt will put you in a better position to handle your monthly payments. Research loans and assistance: Government-sponsored loans have more flexible borrowing requirements than conventional loans. Some government-sponsored or private programs can also help with your down payment and closing costs. Shop around for lenders: Researching and comparing multiple loan offers from different lenders can help you secure the lowest mortgage rate for your situation.
