Even if U.S. Treasury bond yields pull back by a few basis points, their relentless climb will hurt exchange-traded funds that are sensitive to interest rates. There are three ETFs that are near a one-year low and look cheap. But readers should avoid them. They are the utilities, real estate, and consumer discretionary ETFs.
The utilities ETF (XLU) is fighting to hold the $40 bottom. In the last quarter, the XLU ETF lost 13.01% while the S&P 500 (SPY) gained 2%. Constellation Energy (CEG) was the best performer, gaining 9.34%. The energy supplier benefited from a 20-year power agreement with Amazon (AMZN). That would support over $3 billion in investments for its Calvert Cliffs nuclear power plant.
PG&E (PGE) fell 29.35%. The firm deferred $2 billion in capital spending for 2027. Wildfire reform efforts are a headwind for PGE stock.
REITs are unattractive holdings when risk-free bond yields offer over 5%. The XLRE ETF is barely break-even in 2026. Borrowing costs climbed to 7.28% on average as of Oct. 1. Office REITs fell by 4.7% in the last week.
Lastly, the consumer discretionary XLY ETF is pricing in a decline in consumer spending. Consumers need to pay indirectly for higher diesel prices. Elastic goods fall in demand when prices rise.
Bears hold a 29.4% short interest in Kohl’s (KSS). RH, Whirlpool (WHR), and Norwegian Cruise Line (NCLH) have a short interest of 20% or more. However, short interest is lowest in Home Depot (HD) and Amazon (AMZN).
