The Bond Market Can be Crazy

Susan Jung |

The Bond Market

Interest rates have been going up.  As the Federal Reserve has clearly stated, they will continue to raise interest rates. 

So why has the yield on the 10-year treasury over the course of the last month or so actually gone down (even though the Federal Reserve is raising rates!)?

Here's why.
The Federal Reserve controls monetary policy but the market projects out what future economic activity might look like beyond an interest rate tightening cycle. Notice the right hand third of the chart how rates have been falling even though the Federal Reserve has been tightening monetary policy.

Yes, it is possible for interest rates as priced by the bond market to go down even as the Federal Reserve is raising rates. An upcoming video update will give more detail on how this works.


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