More Analysts Think Fed Will Need to Reverse Its Monetary Policy towards the End of 2023. How to Play this Scenario with an ETF?

Eric Robertsen, chief strategist at Standard Chartered Bank, said that a 2% Fed’s interest rate cut would be the biggest “black swan” event in 2023. The Aggregate Bond ETF and the iShares 20+ Year Treasury Bond ETF are perfect vehicles to illustrate the implications of this phenomenon. With U.S. Treasuries yielding around 4-5% right now, with premium stock valuations and an inverted UST yield curve, the iShares Core U.S. Aggregate Bond ETF (AGG) and the iShares 20+ Year Treasury Bond ETF (TLT) appear to be getting the payoff of the game perfect tool.

The iShares 20+ Year Treasury Bond ETF (TLT) seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities greater than 20 years. The iShares Core U.S. Aggregate Bond ETF seeks to track the investment results of an index composed of the total U.S. investment-grade bond market. AGG manages more than $91 billion in assets. In comparison, the TLT Fund is smaller but still manages a lofty $39 billion in assets. Like many other funds in the iShares family, both funds have extremely low fees in their respective categories: AGG charges a 0.03% expense ratio and TLT charges a 0.15% expense ratio.

According to Eric Robertsen at Standard Chartered Bank (and his opinion makes a lot of sense!),

“…the FOMC has underestimated the significant damage that rising rates in 2023 will cause to the economy. If the U.S. economy enters a deep recession in the first half of the year, the central bank may switch to a more accommodative monetary policy and cut rates by as much as 200 basis points.”