Fed Rate Hike Brings Bond Relief

Mortgage rates and the bond market improved after the Fed raised rates—but the 10-year Treasury is still battling a critical 5% level.
In this week’s Master The Markets, host and expert Bill Bodnar explains the market’s counterintuitive reaction to the Fed’s latest decision. Kevin Warsh and the Fed unanimously raised rates by 25 basis points, yet the bond market rallied once investors had time to digest the move, pushing the 10-year Treasury back below 5%.
Why would a Fed rate hike help bonds? Bill explains that tighter monetary policy can reduce inflation pressure and protect the long-term value of bonds. The market’s reaction suggested investors believe the Fed is serious about staying the course and fighting inflation.
But U.S. policy is only part of the story. Japan recently raised rates to their highest level in more than 30 years while the yen continued weakening against the dollar. That could create additional pressure on U.S. Treasuries if Japan sells some of its holdings to support its currency.