NEW YORK–Amid considerable attention, the Federal Reserve cut rates last week with widespread expectations of rate reductions in financial products, but longer-term Treasury yields actually increased, with analysts saying bond investors didn’t get the assurances they sought.
The 10-year Treasury yield rose as high as 4.145% after briefly falling below 4% earlier. The yield on the 30-year Treasury, which is closely followed for its connection to home mortgages, was trading around 4.76%, up from a low of 4.604% earlier in the week.
As the CU Daily reported, the Fed moved last week to reduce its benchmark lending rate a quarter percentage point to 4.00%-4.25%, which put a charge in the stock market.
But bond traders saw the move as an opportunity to “sell the news” after recent bond gains, Peter Boockvar, chief investment officer at One Point BFG Wealth Partners, told CNBC. “Traders of longer-dated bonds don’t want the Fed to be cutting interest rates.”
As credit unions are well aware, prices and yields for bonds move in an inverse direction, and the selling of long-term bonds drove down the price and drove up the yield.
Taking the Eye Off
“Easing monetary policy at a time when inflation is running above the Fed’s 2% target and the economy looks steady can indicate the central bank is ‘taking the eye off’ inflation,” Boockvar told MSNBC, citing a key risk to longer-duration securities.
The Fed, under pressure from President Trump to cut rates, indicated upon adjourning its meeting that it sees inflation rising slightly in 2026.
MSNBC noted investors have been looking for the Fed to shift its emphasis from fighting inflation to boosting the labor market following weak unemployment data.
The Bigger Picture
While the stock market can move significantly on one rate cut, bond investors are trying to make decisions based on what they see as the bigger picture, Chris Rupkey, chief economist at FWDBONDS, told MSNBC.
“It’s not the journey, it’s the destination,” he said. “They’re trying to assess: What’s the end game in this? The bond market really will react once it is assured that the central bank is going to lower the rates dramatically.”
Mortgage Rates Rise
Meanwhile, after slow but steady decreases, mortgage rates rose after the Federal Reserve’s move to cut rates.
The average 30-year fixed mortgage rate was 6.35% on Friday, up from 6.13% the day before the Fed cut rates, according to Mortgage News Daily.
