Bond Market Responds Oddly to the Fed’s Move
There’s so much uncertainty that few are prepared to make big bets on anything — for now.
An unexpected outcome.
Photographer: Stefani Reynolds/AFP/Getty Images
You wouldn’t normally expect market yields to surge higher at a time when the Federal Reserve just increased the size of its interest rate cuts from 25 basis points to 50 basis points. Yet this is exactly what has happened. Astonishingly, the yield of the 10-year US government bond has risen by more than 60 basis points from its level on Sept. 18, the day of the last Fed policy meeting. And the increase in yields has occurred right across all the major maturities.
While most analysts agree on the list of potential contributors to this unusual development, there is little consensus on their relative importance. This matters for what we forecast about the future wellbeing of the economy and for the sustainability of this year’s impressive stock market performance. Fortunately, the next eight days are set to bring clarity to a rather confusing situation.